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LABORATORY  MANUAL 


Elements  of  Accounting 


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1 1 


1921  EDITION 


Fayette  H.  El  well,  B.  A.,  C.  P.  A. 

PROFESSOR  OF  ACCOUNTING 
THE  UNIVERSITY  OF  WISCONSIN 


LABORATORY  MANUAL 


Elements  of  Accounting 


1921  EDITION 


^ 


Fayette  H.  El'a^ll,  B.  A.,  C.  P.  A. 

PROFESSOR  OF  ACCOUNTING 
THE  UNIVERSITY  OF  WISCONSIN 


^L8 


COPYRIGHT,  1921 

By 

FAYETTE  H.  ELWELL 


The  Pakkeb  Company 
Madison,  Wisconsin 


PREFACE 


From  the  problems  presented  in  this  set  are  selected  those 
which  compromise  the  laboratory  problem  work  for  the  second 
semester  course  in  Elements  of  Accounting  given  in  the  Course  in 
Commerce,  University  of  Wisconsin.  This  set  supplements  the 
laboratory  material  contained  in  the  text. 

Particular  attention  is  called  to  the  fact  that  Problems  59,  60, 
68,  69,  70,  73,  75,  92,  and  109  are  copyrighted  by  Professor  John  R. 
Wildman.  Permission  for  including  them  in  this  set  was  duly 
secured,  and  I  herewith  express  my  sincere  appreciation  to  Pro- 
fessor Wildman  for  this  courtesy. 

Problems21,22,  24,  26,  49,  51,52,71,72,  114,  115,  and  116  have 
been  adapted  for  use  from  the  English  Intermediate  and  Final 
Examinations. 

Several  problems  are  quoted  from  or  adapted  from  State  C.  P. 
A.  Examinations. 

Unless  otherwise  indicated,  all  the  problems  contained  in  this 

manual  have  been  copyrighted. 

f:  H./ELWELL. 
July  1,  1921. 


t 


452244 


PROBLEM  1 

1.  The  daily  payroll  of  the  X  Manufacturing  Co.  is  $500,  and  the  men  are 
paid  every  Saturday  night.  If  the  last  day  of  the  month  falls  on  Thursday, 
what  adjusting  entry  would  you  make  for  the  payroll? 

2.  You  find  on  the  ledger  of  the  J.  B.  Cox  Co.  an  account  called  Unexpired 
Insurance  $800  Dr.  and  one  called  Insurance  $350  Dr. 

a.  Which  account  would  you  close  into  Profit  and  Loss? 

b.  How  did  the  debit  get  into  the  Insurance  Account — through  the 
cash  book,  journal,  or  purchase  book? 

3.  On  December  31,  the  following  entry  was  made  to  take  up  the  accrued 
interest  on  a  note  receivable : 

Accrued  Interest  on  Notes  Receivable •  • $200 

Interest  Earned $200 

On  January  15  the  interest  amounting  to  $210  was  paid.     Prepare  the 
necessary  cash  book  entry  to  record  the  payment. 

4.  Give  the  adjusting  entries  for  the  following: 

At  the  close  of  the  year  Dec.  31,  an  interest  bearing  note  payable 
in  favor  of  John  Jones  dated  Nov.  25,  at  90  days  for  $300,  is  outstanding. 
Also  a  note  receivable  with  interest  dated  Dec.  15,  for  $100  and  signed 
by  Chas.  Sprague. 

Taxes  for  the  month  are  estimated  at  $20. 

Gas  and  electric  bills  amounting  to  $15  are  unpaid. 

Manager's  salary  for  month  amounting  to  $150  is  unpaid. 

It  is  estimated  that  the  horses  used  for  delivery  purposes  have  eaten 
$25  worth  of  feed  which  had  been  bought  and  paid  for  in  previous 
months. 

5.  Make  the  journal  entries  necessary  for  the  following  adjustments  at  the 
close  of  a  period : 

Depreciation  on  Building $      20 

Depreciation  on  Office  Equipment 5 

Depreciation  on  Store  Furniture 10 

Depreciation    on    Delivery    Equipment 100 

Bad  Debts   50 

Office  Supplies  on  Hand 15 

Prepaid  Advertising  60 

Freight  on  Goods  Purchased 200 

Store    Employes    Unpaid 30 

Care  of  Delivery  Truck  Bill  Unpaid '. 20 

Interest   Accrued    on    Notes    Receivable 15 

Expired  Insurance  on  Stock 25 

Merchandise  Inventory   6,000 

6.  The  A  Company  shipped  a  bill  of  goods  amounting  to  $460.00  to  a  cus- 
tomer, rendering  the  usual  invoice  therefor.  The  goods  were  destroyed 
in  transit  by  a  railway  wreck.  The  A  Company  subsequently  made  a 
second  shipment  to  its  customer  to  replace  the  lost  goods,  and  collected 
$460.00  from  the  railway  company  in  payment  of  the  lost  shipment.  Give 
the  complete  entries  for  this  transaction. 

(New  York,  1915) 


.   ■'  Jt     <       i    *      t     ■   ,  '  •         '       ' 

PROBLEM  2 

On  December  31,  19 — you  were  asked  to  clo£e  the  books  of  the  business 
of  F.  W.  Barton.  The  present  worth  which  you  obtain  is  to  be  accepted  as 
the  value  of  the  business  by  R.  J.  Carter,  who  is  purchasing  Barton's  business. 
The  ledger  balances  are  as  follows: 

F.  W.  Barton,  Investment $18,515 

Real  Estate  1,000 

Buildings    and    Fixtures 8,000 

Furniture   and   Furnishings 2,250 

Automobile  Delivery  Truck 550 

Accounts    Receivable 7,875 

Accounts  Payable   5,425 

Discounts  on  Sales 50 

Merchandise  Inventory,  Jan.  1,  1919 10,000 

Discount  on  Purchases   180 

Merchandise    Sales    15,000 

Merchandise    Purchases    6,000 

Unexpired  Insurance   75 

Salaries  and  Wages 2,000 

General  Expense   1,000 

Interest   Paid 25 

Interest  Earned   20 

Notes  Receivable  300 

Notes    Payable     400 

Advertising    120 

Rent  Received  from  Offices  Upstairs 480 

Cash  on  Hand 775 

a.  Use  the  following  data  in  determining  the  net  profit  or  loss  and  the 
net  worth  of  the  business : 

Mdse.   Inventory,   December  31,   1919 $  6,000 

General  Expenses  Prepaid 50 

General  Expenses  Accrued 25 

Insurance  Unexpired   ' 50 

Interest  Accrued  on  Notes   Receivable 10 

Interest  Accrued  on  Notes  Payable 5 

Salaries  and  Wages  Accrued 70 

Barton  and  Carter  agree  that  the  fixed  assets  should  be  valued  as  follows : 

Real    Estate     $  1,500 

Buildings  and  Fixtures   7,500 

Furniture   and    Furnishings 2,000 

Automobile  Delivery  Truck 400 

b.  What  amount  should  Carter  pay  for  the  business? 
Carter  paid  Barton  the  price  obtained  above  by : 

(1)  The  check  he  (Carter)  received  from  Ames  Dwight  for  $1,200; 

(2)  A  New  York  draft  of  $1,500  which  he  received  of  A.  Radway; 

(3)  An  accepted  10  day  draft  for  $1,000  drawn  on  J.  W.  Miner  by  R.  W. 
Wilson,  and  transferred  to  Carter  by  endorsement; 

(4)  An  accepted  30  day  draft  on  J.  Murray  for  $500; 

(5)  Cash  for  the  balance. 

Make  the  journal  entry  in  Barton's  books  which  will  record  the  payment 
by  Carter  of  the  above  amounts. 

PROBLEM  3 

Group  the  accounts  given  in  Problem  2,  according  to  assets,  liabilities, 
proprietary  interest,  income  and  expense.  Follow  the  same  general  arrange- 
ment as  indicated  in  Miner  and  Elwell,  pages  347-348. 


PROBLEM  4 

1.  On  July  1  Frank  Wilson  and  Chas.  K.  Peck  began  a  provision  business 
with  the  following  assets  and  liabilities : 

Assets 

Cash    $1,350 

Merchandise    4,250 

Office  Furniture  240 

Delivery  Equipment   200 

Accounts   Receivable    850 

Liabilities 

Notes  Payable   800 

Accounts  Payable   940 

The  partners  had  an  equal  interest  in  the  business.  The  books  had  been 
kept  by  single  entry.  On  October  1,  the  partners  decided  to  change  the  books 
to  double  entry.    The  assets  and  the  liabilities  on  that  date  were  as  follows : 

Assets 

Cash  $   925.00 

Merchandise   4,150.00 

Office  Furniture 240.00 

Delivery  Equipment 200.00 

Accounts  Receivable: 

A.  H.  Kern 150.00 

T.  L.  Fuller 130.00 

E.  R.  Lakey 165.00 

H.  M.  Hanna 175.00 

Henry  S.  Arnold 250.00 

Liabilities 

Notes  Payable    $325.00 

Accounts  Payable: 

H.  J.  Gould 100.00 

J.  L.  Burgess 140.00 

A.  H.  Francis 200.00 

G.  F.  Hatfield 85.00 

(a)  In  the  ledger,  credit  each  partner  with  one-half  the  net  assets  -on 
July  1. 

(b)  Make  a  statement  showing  the  net  profit  on  October  1. 

(c)  Credit  each  partner  in  the  ledger  with  one-half  the  net  profit,  and 
show  the  present  worth  of  each  partner. 

(d)  Change  to  double  entry  by  debiting  in  the  ledger  each  asset  item, 
and  crediting  each  liability  item,  on  October  1.  Take  a  trial  balance 
of  the  ledger. 

2.  David  E.  Easton  has  assets  and  liabilities  on  December  31,  as  follows: 

Accounts  Receivable  $1,972.10 

Bills  Receivable 561.95 

Merchandise  Inventory 927.50 

SuppHes 85.00 

Real  Estate  4,000.00 

Cash 1,856.22 

Accounts  Payable $2,050.25 

Notes  Payable   500.00 

On  January  1  of  the  same  year  he  began  business  with  $6,500  in  the  bank, 
real  estate  worth  $4,000,  a  note  signed  by  Samuel  Wright  for  $500.  One  of 
his  notes  in  favor  of  Wilson  and  Co.  for  $300,  was  outstanding.  On  January  1 
Easton's  account  was  credited  with  $11,000.  Find  the  profit  for  the  period  and 
make  the  necessary  entry  to  change  to  double  entry. 

7 


PROBLEM  5 

1.  Tell  which  of  the  following  are  capital  expenditures  and  which  are 

revenue  expenditures: 

(aj   Buiiding  a  road. 

{b;  Repairing  a  road. 

(c;  Jb-xtending  the  road  already  built  into  a  new  district. 

(d;   Resurtacing  tne  road: 

1.  \Vuii  materials  of  the  same  quality  as  were  originally  used. 

2.  VVitn  materials  of  a  better  quality  than  were  onginaiiy  used, 
(e)   Jfurchasing  a  wooden  hling  cabinet. 

(i)    Repairing  the  tiling  cabinet. 

Cgj   Purchasing  an  additional  unit  for  the  filing  cabinet. 

{h}  Replacing  the  wooden  tiling  cabinet  with  a  steel  cabinet. 

2.  State  which  of  the  following  should  be  charged  or  credited  to  capital 

and  which  to  revenue : 

(a)  Repairs  to  machinery  and  plant. 

(h)  Replacements  of  machinery  and  plant. 

(cj  Royalties  on  machines,  owned  and  used  by  the  company  owning  the  patents, 
similar  machines  being  leased  under  royalty  to  competitors. 

(d)  Brokerage  on  a  piece  of  property  purchased. 

(e)  Costs  attending  a  mortgage  given. 

(f)  Costs  of  patents,  including  lawyer's  charges  and  government  fee. 

(g)  Expenses  of  incorporating  a  company, 
(h)  Discount  on  bonds  sold. 

(i)    Premium  on  bonds  sold. 

3.  The  trustee  of  an  estate  owning  several  buildings,  built  up  from  time 
to  time  a  fund  to  care  for  repairs,  which  fund  amounted  to  $6,000.00.  The 
roof  of  one  of  the  buildings  was  in  such  condition  as  to  require  renewal,  which 
would  be  an  expense  of  $4,500.00.  It  was  decided  to  reshingle  the  building 
with  material  of  more  durable  character,  which  would  be  an  expense  of 
$6,500.00. 

Give  the  entries  to  record  this  transaction. 

(Massachusetts,  1913) 

PROBLEM  6 

Make  the  necessary  journal  entries  for  the  following  transactions : 

1.  An  adding  machine  is  purchased  for  $300.  Depreciation  is  written  off 
at  the  rate  of  10%  per  annum.  At  the  end  of  5  years  the  machine  is  sold  to 
B.  I.  Brown  for  $200. 

2.  Machinery  account  is  debited  for  $10,000.  The  rate  of  depreciation  is 
10%  per  year.    At  the  end  of  the  sixth  year  the  machine  is  sold  for  $5,000. 

3.  A  hay  dealer  has  a  press  which  cost  $1,800.  He  has  reserved  S% 
for  depreciation  each  year  for  5  years.  At  the  end  of  the  fifth  year  he  is 
allowed  $900  for  the  old  press  on  a  trade  for  a  new  one  costing  $2,000.  He 
pays  $200  in  cash  ;  balance  on  account. 

4.  The  Barnes  Co.  secures  a  new  motor  truck  from  the  Austin  Co.  by 
paying  $300  in  cash  and  trading  in  their  old  truck  for  $500.  The  old  truck 
stood  on  the  books  at  $900  and  a  reserve  for  depreciation  of  $250  had  accumu- 
lated against  it. 

5.  A  farmer  owns  a  threshing  machine  which  cost  him  $1,500.  At  the 
end  of  each  of  the  five  years  he  has  owned  it  he  has  credited  a  Reserve  for 
Depreciation  account  with  $150.  At  the  end  of  the  fifth  year  he  trades  the 
machine  to  the  Jones  Co.  for  a  new  one  costing  $2,000.    He  is  allowed  $1,100 

8 


for  the  old  machine  and  he  pays  $100  cash ;  balance  on  account.  The  farmer 
sets  up  10%  of  the  cost  price  of  the  new  machine  as  an  annual  credit  to  Reserve 
for  Depreciation.  The  new  machine  is  not  satisfactory  and  at  the  end  of  the 
second  year  the  farmer  sells  it  for  $1,200  cash. 

6.  Frank  Penner  trades  in  an  old  typewriter  which  was  in  his  inventory  at 
$90,  for  a  new  one  worth  $125,  The  typewriter  company  allows  $70  on  the 
old  machine,  for  which  a  reserve  of  $30  was  on  the  books.  Make  the  necessary 
journal  entries  on  the  basis  that  the  difference  in  value  between  the  two 
machines  was  paid  in  cash. 

7.  A  manufacturing  concern  purchased  for  $500  cash,  a  used  machine,  the 
original  price  of  which  was  $1,200.  The  machine  was  charged  at  $1,200  and 
a  reserve  for  depreciation  of  machine  for  $700  set  up.  Each  year  thereafter 
depreciation  at  the  rate  of  10%  per  annum  was  taken  on  cost.  Three  years 
after  the  machine  was  purchased  it  was  traded  in  for  a  new  machine  at  $100. 
The  price  of  the  new  machine  was  $1,500. 

8.  Name  the  advantages  or  disadvantages  of  the  following  two  methods  of 
recording  depreciation  on  machinery : 

(a)  Crediting  Machinery  Account  with  ten  per  cent  of  the  balance  of  the  account 
each  year  and  charging  Profit  and  Loss. 

(b)  Crediting  a  reserve  for  Depreciation,  Machinery  Account  with  ten  per  cent  of 
the  account  each  year  and  charging  Profit  and  Loss. 

PROBLEM  7 

In  each  of  the  following  transactions  show  the  balances  of  all  accounts 
affected : 

1.  A  new  machine  is  purchased  for  $1,600,  to  take  the  place  of  an  old 
one  exactly  similar  that  cost  $1,500  four  years  ago.  A  reserve  has  been  accu- 
mulated for  its  depreciation,  amounting  to  $1,200,  but  the  old  machine  was 
traded  in  toward  the  new  one,  counting  $150  as  part  payment. 

2.  A  new  machine  is  purchased  for  $1,200  to  replace  one  exactly  similar 
that  cost  $1,500.  The  reserve  account  shows  a  credit  of  $1,200.  $150  is 
allowed  for  the  old  machine  to  apply  on  the  purchase  of  the  new  one. 

3.  A  machine  costing  $1,000,  purchased  for  cash  to  replace  an  old  machine 
costing  the  same  sum,  is  lost  through  the  capsizing  of  a  boat  on  the  lake.  A 
balance  of  $750  remained  in  the  reserve  account  after  the  value  -of  the  old 
machine  had  been  closed  into  it. 

PROBLEM  8 

1.  Sales  for  August  amount  to  $3,000.  One  per  cent  of  sales  is  considered 
sufficient  to  reserve  for  bad  debts.  On  August  1,  the  Reserve  for  Bad  Debt 
account  has  a  balance  of  $325.  On  August  15,  John  Smith,  a  customer  owing 
$150,  goes  into  bankruptcy  and  the  trustee  pays  10  cents  on  the  dollar  of 
the  bankrupt's  debts.  On  August  20,  the  account  against  Bray  Bros.,  another 
customer,  is  collected,  $75 ;  fees  for  collection  services,  $10.  Show  journal 
entries  for  these  transactions  and  the  balance  of  the  Reserve  for  Bad  Debts 
account  on  August  31. 

2.  The  loss  from  bad  debts  average  one  per  cent  of  sales.  December  1, 
the  balance  in  the  Reserve  for  Bad  Debts  account  is  $300.  The  sales  for 
December  amount  to  $7,000.  During  December,  $10  is  paid  a  firm  of  lawyers 
who  were  ordered  to  bring  suit  to  collect  an  account.  A  debtor  owing  $50 
assigned  for  benefit  of  creditors.     The  trustee  paid  out  50c  on  the  dollar. 

9 


Five  dollars  was  paid  as  special  commission  on  collection  of  an  old  account. 
Show  journal  entries  for  these  transactions,  and  the  balance  of  the  Reserve 
for  Bad  Debts  account  on  December  31.  ' 

3.  The  following  notations  appear  at  the  foot  of  a  trial  balance.  Give 
the  journal  entries  necessary  to  record  them  properly: 

(1)  Accrued  Interest  on  Notes  Receivable $  30.00 

(2)  Accrued  Interest  on  Notes  Payable 50.00 

(3)  Insurance  for  the  Period 75.00 

(4)  Unpaid  Wages  40.00 

(5)  Unpaid  Gas  and  Electric  Bill 25.00 

(6)  Depreciation  on  Building 200.00 

(7)  Estimated  Bad  Debts  for  Period 60.00 

4.  The  following  trial  balance  is  made  up  at  the  end  of  the  first  period's 
business  from  the  accounts  appearing  on  the  ledger  of  John  Boyle.  Note 
that  certain  adjusting  entries  for  depreciation,  bad  debts,  and  accruals  have 
been  made. 

Cash $  1,950.00 

Notes   Receivable   2,000.00 

Accounts  Receivable  $4,000.00 

Less  Reserve  for  Bad  Debts 400.00 

3,600.00 

Mdse.  Inventory  10,000.00 

Real  Estate   1,000.00 

Building 3,000.00 

Less  Reserve  for  Depreciation 150.00 

2,850.00 

Delivery  Equipment 500.00 

Less  Reserve  for  Depreciation 100.00 

400.00 

Accrued  Interest  Receivable 10.00 

Notes  Payable $  6,000.00 

Accounts  Payable 1,000.00 

Accrued  Interest  Payable ,  20.00 

Interest  Earned 40.00 

John  Boyle  Invest 10,00o!o0 

Mdse.  Sales  , 19,570.00 

Mdse.  Purchases  5,480.00 

Operating  Expenses 8,690.00 

Bad  Debts   400.00 

Depreciation 200.00 

Interest  Paid 5o!oO 

$36,630.00        $36,630.00 

What  journal  entries  should  be  made  to  put  the  reserves  and  the  accruals 
on  the  books? 

PROBLEM  9 

Cash $     244.00 

Notes  Receivable 217.00 

Accts.  Receivable  5,140!oO 

Mdse.  Inventory,  Jan.  1 3,020.00 

Notes  Payable   1,158.00 

Accts.  Payable  2'692!00 

John  Smith,  Invest 3  500  00 

Mdse.  Sales .'   16,'406!00 

Disc,  on  Purchases 329.00 

Mdse.  Purchases  7  588  (K) 

Rent  Paid '..'.'.'.'.'.'.'.'.'..  '780.00 

balesmen  s  Salaries 4  839  00 

Advertising ['.'.'.['.'.'.'.'.  'S03!00 

10 


Fuel 100.00 

Taxes  and  Insurance 139.00 

Office  Salaries   445.00 

Stationery  and  Office  Supplies 284.00 

Postage 40.00 

Telephone  and  Telegraph 108.00 

Sundry  Office  Expense 190.00 

Interest  Paid 175.00 

Disc,  on  Sales 258.00 

Collection  and  Exchange 17.00 

Notations: 

Mdse.  Inventory,  Dec.  31 $2,810.00 

Estimated  Loss  by  Bad  Debts 150.00 

Accruals: 

Expenses 90.00 

Interest  on  Notes  Pay 15.00 

Interest  on  Notes  Rec 2.00 

Prepare: 

(a)  Trial  Balance.* 

(b)  Adjusting  and  closing  journal  entries. 

(c)  Operating  and  financial  statements. 

Note:  Where  specific  requests  are  not  stated  in  the  problem,  the  instructor 
may  ask  the  student  to  prepare  any  or  all  the  following:  adjusting  and  clos- 
ing journal  entries,  revenue  accounts,  operating  statement  and  financial  state- 
ment. The  instructor  also  may  request  that  several  problems  be  solved  on 
working  sheets,  so  that  the  student  may  be  thoroughly  familiar  with  this 
useful  method  of  obtaining  statement  data. 

PROBLEM  10 

Cash,  in  Safe $  210.00 

Cash,  on  Deposit 1,600.00 

Notes  Receivable 856.45 

Accts.  Receivable 3,276.85 

Mdse.  Inventory   2,146.75 

Real  Estate 2,000.00   ' 

Building  and  Fixtures 6,500.00 

Office  Furniture   450.00 

Auto  Delivery   475.25 

Arnold  Mfg.  Co.  Stock 2,000.00 

Notes  Payable  $  1,243.45 

Accts.  Payable 2,750.05 

R.  H.  Tillson,  Invest 7,500.00 

R.  H.  Tillson,  Drawing 98.60 

Jas.  A.  Dodge,  Invest 7,500.00 

Jas.  A.  Dodge,  Drawing 75.00 

Thos.  A.  Wilbur,  Invest 3,750.00 

Thos.  A.  Wilbur,  Drawing 40.90 

Mdse.  Sales  6,375.00 

Interest  Earned 14,50 

Mdse.  Disc,  on  Purchases 30.90 

Mdse.  Purchases  8,947.55 

Mdse.  Disc,  on  Sales 21.20 

Sundry  General  Expense 17.55 

Salaries 417.00 

Interest  Paid 30.80      * 


$29,163.90        $29,163.90 
Inventories: 

Merchandise $  7,850.00 

Depreciation: 

Building  and  Fixtures 2% 

Office  Furniture 5% 

Auto  Delivery   10% 

11 


Accrued  Expenses: 

Freight  and  Cartage  on  Purch 21.00 

Freight  and  Cartage  Out 32.00 

Salaries 100.00 

Sundry  General  Expense 4.50 

PROBLEM  11 

Cash $    2,680.00 

Notes  Receivable 855.00 

Accts.  Receivable   6,025.00 

Reserve  for  Bad  Debts $     1,495.00 

Mdse.  Inventory,  Sept.  1 61,730.00 

Store  and  Office  Furniture 5,295.00 

Fuel 300.00 

Advertising 1,060.00 

Light 255.00 

Delivery  Expense   2,475.00 

Repairs  to  Furniture 210.00 

Unexpired  Insurance  860.00 

Notes  Payable  10,000.00 

Accts.  Payable 13,320.00 

J.  Burd,  Invest 20,000.00 

J.  Burd,  Drawing 155.00 

T.  Bond,  Invest 20,000.00 

T.  Bond,  Drawing 85.00 

Mdse.  Sales 47,495.00 

Mdse.  Disc,  on  Purchases 1,200.00 

Interest  Earned 20.00 

Rent  Earned  (Sub-lease) 300.00 

Mdse.  Purchases 25,435.00 

Rent  Paid  1,000.00 

Salesmen's  Salaries 5,535.00 

Telephone  and  Telegraph 35.00 

Interest   Paid    150.00 

$113,985.00        $113,985.00 
Notations: 

Mdse.  Inventory,  Sept.  30 $  51,480.00 

Insurance  for  the  month. 50.00 

The  loss  from  bad  debts  estimated  at  1%  of  the 

sales. 
Depreciation  on  store  and  office  furniture,  10% 

for  the  year. 
The  month's  share  of  taxes  is  estimated  at  $100. 
Fuel  on  Hand 265.00 


PROBLEM  12 

Cash  in  Safe $  245.95 

Cash,  on  Deposit 1,210.22 

Notes  Receivable    800.00 

Accts.  Receivable   - 532.75 

Mdse.  Inventory   2,630.60 

Real  Estate  2,000.00 

BuildinpT  and  Fixtures 4,532.00 

Office  Furniture  132.21 

Auto  Delivery  365.60 

Midland  R.  R.  Stock 1,500.00 

Central  R.  R.  Stock .• . . .  1,500.00 

Notes  Payable   $       756.25 

Accts.  Payable  962.25 

Jas.  L.  Merritt,  Invest 8,000.00 

Tas.  L.  Merritt,  Drawing 55.00 

Howard  J.  Paton,  Invest 4,000.00 

12 


Howard  J.  Paton,  Drawing 40.00 

Martin  T.  Leland,  Invest 4,000.00 

Martin  T.  Leland,  Drawing 56.80 

Mdse.  Sales ; 5,190.00 

Interest  Earned 25.55 

Mdse.  Disc,  on  Purchases 35.65 

Mdse.  Purchases  7,007.24 

Mdse.  Disc,  on  Sales 21.00 

Sundry  General  Expense 14.23 

Salaries 373.35 

Office  Supplies 15.00 

Interest  Paid   17.75 

$  23,009.70        $  23,009.70 
Inventories: 

Merchandise $    5,375.00 

Depreciation: 

Building  and  Fixtures 1  % 

Office  Furniture 6% 

Auto  Delivery  5% 

Accrued  Expenses: 

Unpaid  Telephone  Bill 11.00 

Unpaid  Salaries  1 10.00 

Office  Supplies,  Unpaid  Bill 6.25 

PROBLEM  13 

Petty  Cash  $  160.00 

Cash  on  Deposit   2,985.00 

Notes  Receivable   3,000.00 

Accounts    Receivable    8,075.00 

Reserve  for  Bad  Debts   $     1,800.00 

Merchandise  Inventory    40,730.00 

Furniture  and  Furnishings   8,585.00 

Delivery  Equipment    1,800.00 

Unexpired   Insurance    1,310.00 

Fuel  on  Hand 425.00 

Notes   Payable    1 1,860.00 

Accounts   Payable    8,425.00 

C.  A.  Chadwick,  Investment 30,000.00 

C.  A.  Chadwick,  Drawing 210.00 

Merchandise   Sales    91,755.00 

Mdse.  Disc,  on  Purchases 1,770.00 

Commissions   Earned    660.00 

Interest  Earned    115.00 

Rent  Earned 185.00 

Merchandise  Purchases   48,775.00 

Store  Rent  Paid  2,400.00 

Salesmen's  Salaries   9,080.00 

Advertising 6,035.00 

Delivery   Expense    3,820.00 

Warehouse  Rent  Paid 540.00 

Office    Salaries    5,485.00 

Sundry  Office  Expenses   2,850.00 

Interest  Paid   305.00 

$146,570.00       $146,570.00 

Merchandise  Inventory   24,665.00 

Depreciation: 

Furniture  and  Furnishings,   10%   per  year. 

Delivery  Equipment,  25%  per  year. 

Insurance  for  the  Year 500.00 

Fuel  for  the  Year   300.00 

Taxes  are  Estimated  at 500.00 

Accrued  Salaries: 

Office    120.00 

Salesmen  435.00 

13 


PROBLEM  14 

Petty  Cash  $     150.00 

Cash  on  Deposit 4,000.00 

Notes  Receivable  4,750.00 

Accounts  Receivable  8,600.00 

Merchandise  Inventory   12,500.00 

Furniture  and  Furnishings   800.00 

Good  Will    6,500.00 

Prepaid  Insurance   750.00 

Notes  Payable  $  1,500.00 

Accounts  Payable 2,000.00 

Johnson,  Investment  25,000.00 

Johnson,  Drawing 625.00 

Wells,  Investment 12,500.00 

Wells,  Drawing   325.00 

Merchandise  Sales   27,000.00 

Interest  Earned 85.00 

Merchandise  Purchases   17,500.00 

Rent   Paid    1,000.00 

Heat  and  Light 300.00 

Salesmen's  Salaries   6,800.00 

Freight  on  Sales 425.00 

Traveling   Expenses    400.00 

Sundry  Sales  Expense 100.00 

Office  Salaries  1,305.00 

Sundry  Adm.  Expenses  1,000.00 

Discounts  on  Sales   150.00 

Interest  Paid   105.00 


$68,085.00  $68,085.00 

Notations: 

Insurance  of  the  Six  Months $     200.00 

Estimated  Taxes  for  the  Period 200.00 

Allow  Johnson  salary  at  the  rate  of  $2,500  per 

annum    and   Wells    salary    at    the    rate    of 

$1,500  per  annum. 
Reserve  5%  for  depreciation  of  furniture  and 

furnishings. 
Reserve  2%  of  sales  for  bad  debts. 

Merchandise  Inventory 12,860.00 

Division    of    profit    and    loss:    Johnson,     % ; 

Wells,  Vs. 

PROBLEM  15 

The  following  was  the  trial  balance  of  Brown  and  Green,  December  31, 
19—: 

Cash   $  4,100.00 

Notes    Receivable    6,250.00 

Accounts  Receivable   8,600.00 

Furniture 750.00 

Good  Will    5,000.00 

Inventory,  January  1,   19—   13,000.00 

Prepaid  Insurance   1 ,500.00 

Notes   Payable    $  2,500.00 

Accounts  Payable    4,000.00 

Brown,  Investment   25,000.00 

Green,    Investment    12.500.00 

Brown,  Drawing 1,625.00 

Green,  Drawing    825.00 

Sales    54,000.00 

Returned  Sales   * 425.00 

Fuel  and  Light  2,350.00 

Rent    2,000.00 

Purchases   35,000.00 

14 


Wages    6,800.00 

Traveling  Expenses    1,175.00 

Postage    1,300.00 

Administrative  Expense  3,500.00 

Sundry  Sales  Expense   1,100.00 

Discount  on  Sales   300.00 

Office  Salaries  2,400.00 


$98,000.00  $98,000.00 

Notations: 

Expired  insurance  for  the  year,  $500. 

Taxes  for  the  year,  $400. 

Allow  Brovi^n  and  Green  salaries  of  $4,000  and 

$2,000  respectively. 
Reserve  10%  for  depreciation  of  furniture. 
Reserve  2%  of  Sales  for  bad  debts. 
Inventory  December  31,  19—,  $15,000. 
Interest  accrued  on  notes  receivable,  $75. 
Interest  accrued   on  notes  payable,   $50. 
Freight  on  sales  unpaid,  $150. 
Wages  unpaid,  $200. 

PROBLEM  16 
You  are  given: 

(1)  The  balance  sheet  of  Owen  &  Norman  as  on  Jan.  1,  19 — . 

(2)  The  cash  transactions  for  the  year  ending  Dec.  31,  19. — 

(3)  A  summary  of  the  remaining  transactions  for  that  year. 
You  are  to  prepare : 

(a)  Revenue  accounts  for  the  year  19 — . 

(b)  Financial  statement  as  of  December  31,  19 — . 

Balance  Sheet,  January  1,  19 — . 

Cash  $  4,000.00  Notes  Payable    $  4,000.00 

Notes  Receivable  3,500.00  Accounts  Payable    3,000.00 

Accounts   Re-  Ow^en,  Investment 25,000.00 

ceivable  $10,000.00  Norman,   Investment    25,000.00 

Less  Res.  for  Bad 

Debts  500.00 

9,500.00 

Mdse.  Inventory    15,000.00 

Furniture  and   Furnishings....     5,000.00 

Real  Estate   5,000.00 

Buildings  and  Fixtures   15,000.00 


$57,000.00  $57,000.00 

(2)  Cash  Transactions 

Cash,  January  1,  19—   $  4,000.00  Office  Salaries  $  3,000.00 

Received  from  customers 67,000.00  Wages   3,700.00 

Notes  Receivable 22,500.00  Notes  Payable    38,300.00 

Accounts  Payable   36,750.00 

Sundry  Office  Expenses   2,000.00 

Balance,  December  31,  19—  . . .   10,250.00 


$94,000.00  $94,000.00 

(3)  Summary  of  Remaining  Transactions 

Purchases    $75,000.00 

Discounts  on  Purchases  750.00 

Sales   95,000.00 

Discount  on  Sales   500.00 

Notes  Receivable  Received  from  Customers  During  the  Year....  23,250.00 

15 


Notes  Payable  Given  to  Creditors  During  the  Year 38,750.00 

Depreciation  on   Furniture  and  Furnishings S% 

Depreciation  on  Buildings  and  Fixtures 5% 

Reserve  1%  of  Sales  for  Bad  Debts. 

Inventory,  December  31,  19—  17,500.00 

Note:  In  solving  this  problem,  first  build  up  skeleton  ledger  accounts 
as  necessary,  and  take  a  trial  balance  to  insure  the  accuracy  of  the  work. 


PROBLEM  17 

The  following  was  the  trial  balance  on  June  30,  1919,  of  Johnson  &  Wells, 
carrying  on  a  jobbing  business  in  partnership,  sharing  profits  or  losses  in 
proportion  of  two-thirds  and  one-third,  respectively: 

Good   Will    $  6,500.00 

Fuel  and  Lighting  175.00 

Inventory,  January  1,  1919  12,500.00 

Sales   $27,000.00 

Freight  on  Sales  425.00 

Notes  Payable  1,500.00 

Notes  Receivable    4,750.00 

Office  Salaries  2,350.00 

Johnson,  Investment 25,000.00 

Wells,  Investment   12,500.00 

Johnson,    Drawing    625.00 

Wells,  Draviring 325.00 

Rent    1,000.00 

Purchases    17,500.00 

Wages 6,800.00 

Accounts  Receivable 8,600.00 

Accounts  Payable    2,000.00 

Discounts  on  Sales   150.00 

Cash  on  Deposit   4,000.00 

Cash  on  Hand    100.00 

Postage    250.00 

Furniture  and  Furnishings   750.00 

Prepaid  Insurance   500.00 

Traveling  Expenses 400.00 

Sundry  Sales  Expense  100.00 

Sundry  Administration  Expense 200.00 

$68,000.00  $68,000.00 

Notations: 

Insurance  for  the  six  months,  $200. 
Estimated  taxes  for  the  period,  $200. 
Allow  Johnson  salary  at  the  rate  of  $2,500  per  annum'  and  Wells  salary 

at  the  rate  of  $1,500  per  annum. 
Reserve  5%  for  depreciation  of  Furniture  and  Furnishings. 
Reserve  2%  of  Sales  for  bad  debts. 
Inventory,  June  30,  1919,  $12,860. 


PROBLEM  18 

The  following  trial  balance  is  taken  from  the  ledger  of  Curtis,  Marshall 
and  Hall,  who  share  profits  and  losses  equally : 

Trial  Balance,  January  1,  1919 

Curtis,   Investment  Account    $  57,260.00 

Marshall,    Investment   Account    46',00o!o0 

Hall,  Investment  Account  36,225.00 

Accounts  Payable    47,820.00 

16 


Purchases    $125,010.00 

Investments   3,500.00 

Dividends  on  Investments   300.00 

Cash  on  Hand  1,185.00 

Wages 19,495.00 

Notes  Payable  15,550.00 

Salaries    4,565.00 

Office  Expenses    1,445.00 

Repairs    1,575.00 

Depreciation  Reserve  Account   1 1,250.00 

Interest  and  Discounts  4,945.00 

Sales  163,430.00 

Marshall,  Drawing  Account  3,000.00 

Curtis,  Drawing  Account 3,480.00 

Accounts  Receivable  58,100.00 

Rent    2,750.00 

Lawyers'  Fees  225.00 

Land  8,650.00 

Buildings     95,000.00 

Machinery 40,005.00 

Bills  Receivable    4,905.00 


$377,835.00        $377,835.00 
The  Inventory  on  hand  at  the  close  of  the  period  was  $26,470. 

PROBLEM  19 

Draw  up  from  the  following  Trial  Balance  the  revenue  accounts  and  the 
financial  statement  for  the  year  ending  Sept.  30,  1919. 

James  Taylor  and  Co. 

Trial  Balance,  September  30,  1919 

J.  Taylor,  Capital  $180,260.00 

T.  Jones,  Loan  Account   •                   17,965.00 

Inventory,  September  30,  1918  $161,730.00 

Salaries    6,970.00 

Wages    55,295.00 

Purchases    103,435.00 

Selling  Expenses    8,950.00 

Advertising 6,035.00 

Interest  Paid   1,645.00 

Bad   Debts    1,190.00 

Rent    Paid    : ' 3,780.00 

Taxes   575.00 

Coal    425.00 

Unexpired  Insurance,  Sept  30,  1918 1,310.00 

Sales     167,495.00 

Return  Sales   6,110.00 

Notes  Receivable   855.00 

Notes  Payable 14,020.00 

Commissions  Received  660.00 

Furniture   and   Furnishings    5,295.00 

Rent  Received  150.00 

Repairs  to  Buildings    15.00 

Legal  Expense    135.00 

Petty  Cash   in   Hand    1 5.00 

Bank  Balance— Overdraft   425.00 

Bad  Debt,  Reserve  for 1,495.00 

Accounts  Receivable 52,025.00 

Accounts  Payable    33,320.00 

$415,790.00        $415,790.00 
On  September  30,  1919,  the  merchandise  inventory  amounted  to  $224,200 
and  the  Unexpired  Insurance  was  $900. 

17 


PROBLEM  20 

Trial  Balance,  June  30,  1919 

Billings,   Investment    $181,270.00 

Inventory,  July  1,  1918   $162,740.00 

Salaries    6,970.00 

Wages    55,295.00 

Purchases    103,435.00 

Selling    Expenses    8,950.00 

Advertising 6,035.00 

Interest  Paid   1,645.00 

Bad    Debts     1,190.00 

Office   Rent    3,235.00 

Taxes   575.00 

Coal    425.00 

Insurance    1,310.00 

Sales     167,495.00 

Return  Sales    6,100.00 

Notes  Receivable 855.00 

Notes  Payable  31,985.00 

Warehous'     Rent    Paid    545.00 

Commissior.s   Earned    660.00 

Furniture  and  Furnishings    5,295.00 

Rent    Received    150.00  ' 

Repairs  to  Furniture  and  Furnishings 15.00 

Petty  Cash  on  Hand  160.00 

Cash    2,985.00 

Bad  Debts  Reserve   1,920.00 

Accounts    Receivable    49,040.00    - 

Accounts   Payable    33,320.00 

$416,800.00        $416,800.00 
The  Merchandise  Inventory  on  June  30,  1919,  amounted  to  $223,210. 

PROBLEM  21 
(Adapted  from  the  English  Intermediate  Examination,  June,  1900) 

A  ccr.^fied  public  accountant  gave  one  of  his  staff  a  trial  balance  and  the 
inventory  as  on  June  30,  1918,  instructing  him  to  prepare  therefrom  a  balance 
sheet,  after  crediting  partners  with  5%  on  their  capital.  The  following  in- 
correct statements  were  the  result : 

From  the  information  given  prepare  a  trial  balance  as  of  June  30,  an 
operating  statement  and  a  financial  statement. 

Profit  and  Loss  Account  for  Half  Year  Ending  June  30,  1918 

Purchases  $149,240.00  Sales     $186,635.00 

Inventory,  June  30,   1918    18,370.00  Interest  on  Partner's 

Partner's   Drawing    6,390.00  Capital 2,500.00 

Rent  1.305.00  Inv.  January  1,  1918 16.770.00 

Salaries    3,120.00  Commission   Received    9,330.00 

Wages    21,860.00 

General  Expenses    5,825.00 

Interest   Paid    1,215.00 

Balance,    Net    Pr.    to    Balance 
Sheet    7,910.00 


$215,235.00  $215,235.00 
Balance  Sheet 

Accounts   Receivable    $  87,195.00  Accounts   Payable   $  65,025.00 

Cash  on  Deposit 17,405.00  Notes  Receivable  43.380.00 

Cash  on  Hand   315.00  Partner's   Capital,  January   1, 

Loan  from  Bank   25,000.00  1918    50,000.00 

Inv.  June  30,  1918  18,370.00  Net    Profit    from    Profit    and 

Notes    Payable    18,030.00  Loss  Account   7.910.00 


$166,315.00  $166,315.00 

U  


PROBLEM  22 

(Adapted  from  English  Examination,  December,  1904.) 

Inventory,  January  1,  1917  $  20,000.00 

Land     25,000.00 

Buildings     150,000,00 

Investment,  Scolt  105,000.00 

Investment,   Harris    78,750.00 

Reserve  for   Depreciation,   Buildings 25,000.00 

Cash  on   Deposit 8,250.00 

Cash   on    Hand 750.00 

Accounts   Payable    113,500.00 

General  Administration  Expenses 50,000.00 

Notes   Payable    7,500.00 

Purchases    180,000.00 

Machinery  and  Equipment 75,000.00 

Insurance  Paid  to  July  1,  1918 1,000.00 

Rent  Paid  to  July  1,  1918 750.00 

Reserve  for  Bad  Debts 5,000.00 

Repairs  to  Property 15,000.00 

Improvements  and  Additions  to  Property,  producing  thereby  5% 

increase   of  rents 10,000.00 

Rents  Received   12,750.00 

Reserve    for    Taxes 6,000.00 

Bad   Debts    5,500.00 

Sales   386,500.00 

Salaries    10,000.00 

Depreciation  of  Equipment  and  Machinery 12,500.00 

Investments    25,000.00 

Interest  Paid   8,750.00 

Accounts   Receivable    130,000.00 

Drawings,  Harris   5,000.00 

Drawings,  Scott    7,500.00 

The  stock  on  December  31,  1917,  was  valued  at  $25,000.  Scott  receives 
three-fifths  and  Harris  two-fifths  share  of  the  profits. 


PROBLEM  23 

Jenkins  and  Hart  begin  business  as  partners  on  January  1,  1917.  The 
following  is  the  trial  balance  on  June  30,  1917 : 

Jenkins,  Investment  Account $  30,000.00 

Hart,   Investment   Account 20,000.00 

Sales 112,290.00 

Accounts  Payable  26,400.00 

Accounts  Receivable   $  44,300.00 

Cash 50.00 

Purchases 114,920.00 

Wages  and  Salaries 11,630.00 

Rent 1,975.00 

Furniture  and  Fixtures 4,700.00 

Jenkins,  Drawing  Account 2,250.00 

Hart,  Drawing  Account 1,500.00 

General  Expenses  6,360.00 

Discount  on  Sales 1,005.00 

$188,690.00        $188,690.00 
The  Inventory  on  June  30,  1917,  was  $30,960.00. 

Prepare  as  on  June  30,  1917,  the  operating  statement,  and  balance  sheet 
providing  depreciation  on  Furniture  and  Fixtures  at  the  rate  of  10%  per 
annum,  and  reserving  1%  on  the  amount  of  sales  for  bad  debts. 

10 


PROBLEM  24 

(Adapted  from  English  Intermediate  Examination,  May,  1908) 
B.  M.  Bartlett  and  J.  C.  Blake  carry  on  business  in  partnership,  sharing 
profits  and  losses  in  proportion  to  capital  invested. 

The  following  is  the  trial  balance  of  their  ledger  on  December  31,  1917: 

B.  M.  Bartlett,  Investment  Jan.  1,  1917 $  60,000.00 

J.  C.  Blake,  Investment  Jan.  1,  1917 40,000.00 

Sales 250,000.00 

Purchases $100,000.00 

Stock,  Jan.  1,  1917 44,500.00 

Plant      33,000.00 

Fixtures 2,500.00 

Freight  (inward)  2,500.00 

Salaries  and  Wages 75,000.00 

Commissions  Paid  2,500.00 

Office  and  Traveling  Expense 16,250.00 

Interest  Paid   250.00 

Rent  and  Taxes 3,000.00 

Bad  Debts  1,000.00 

Notes  Receivable   5,000.00 

Accounts  Receivable   40,000.00 

Accounts  Payable  7,500.00 

Accrued  Wages   1,500.00 

Discount  on  Sales 6,250.00 

Discount  on  Purchases 2,500.00 

Bank  Balance  22,500.00 

Cash  on  Hand 250.00 

B.  M.  Bartlett,  Drawing 3,000.00 

J.  C.  Blake,  Drawing 2,000.00 

$361,500.00        $361,500.00 
The  stock  on  hand  at  the  end  of  the  year  amounted  to  $46,500. 

Adjustments : 

Allow  each  partner  $2,500  for  salary,  and  5%  interest  on  capital. 
Deprc.:iation  on  plant  and  fixtures  is  5%;  reserve  for  bad  debts  3^^%  on 

Accounts  Receivable. 

PROBLEM  25 

Cramer,  Fisher,  and  Smith  entered  into  a  partnership  agreement  on 
January  1,  1921  for  the  purpose  of  operating  a  dry  goods  store.  At  December 
31,  1921,  the  Trial  Balance  of  the  partnership,  before  making  any  adjustments, 
was  as  follows : 

Cash  in  Bank $     4,000.00 

Cash  on  Hand 2,000.00 

Merchandise  Inventory  120,000.00 

Accounts  Receivable — Customers    80,000.00 

Accounts  Receivable — Employees 30,000.00 

Furniture  and  Fixtures 100,000.00 

Notes  Payable   $  50,000.00 

Accounts  Payable  25,000.00 

Cramer,  Investment 80,000.00 

Fisher,  Investment  60,000.00 

Smith,  Investment   40,000  00 

Sales 594,000.00 

Purchases 320,000.00 

Salaries 110,000.00 

Store  Expense  80,000.00 

Office  Expense 1,000.00 

Interest  Paid 2,000.00 

$849,000.00        $849,000.00 


Notations : 

Interest  at  5%  is  to  be  allowed  on  the  partners'  Capital  Accounts. 

Mr.  Cramer  owns  the  store  and  will  be  credited  at  the  end  of  each  month 
with  $300  for  rent. 

Of  the  interest  paid  on  Notes  Payable,  $500  applies  to  period  subsequent 
to  December  31,  1921. 

Accrued  Salaries  $1,500. 

Reserve  y2.  of  1%  of  Sales  for  Bad  Debts. 

Allow  10%  depreciation  on  Furniture  and  Furnishings. 

Merchandise  Inventory  December  31,  1921,  $175,000.00. 

Prepare  an  operating  and  financial  statement  as  of  December  31,  1921; 
also  prepare  an  account  for  each  partner. 

PROBLEM  26 

(Adapted  from  the  English  Intermediate  Examination,  December,  1898) 

Arrange  the  following  figures  in  the  form  of  a  Trial  Balance  as  on  Decem- 
ber 31,  1918: 

Capital,  $25,000;  Accounts  Receivable,  $7,500;  Accounts  Payable  $5,000; 
Notes  Receivable,  $1,250;  Notes  Payable,  $1,250;  Furniture,  $500;  Sundry 
Stocks  and  Shares,  $1,000;  Sundry  Expenses,  $2,500;  Real  Estate,  $1,250; 
Depreciation,  $250;  Purchases,  $50,000;  Sales,  $55,000;  Discounts  on  Goods 
Purchased,  $2,500;  Discounts  Allowed  on  Sales,  $1,000;  Cash  on  Hand, 
$16,000;  Inventory  January  1,  1918,  $7,500. 
The  inventory  on  December  31,  1918,  was  $8,750, 

PROBLEM  27 

From  the  following  information  prepare : 

1.  A  trial  balance, 

2.  Closing  journal  entries, 

3.  Operating  and  financial  statements  as  of  December  31. 
Notes  Receivable,  $4,000;  Accounts  Receivable,  $6,540;  Notes  Payable, 

$2,480.89;  Accounts  Payable,  $3,600;  Real  Estate,  $6,750;  Plant  and  Machin- 
ery, $7,500;  General  Expense,  $1,500;  Office  Salary,  $600.75;  Wages,  $183.45; 
Freight  and  Cartage  Out,  $200;  Cash  on  Hand,  $175;  Cash  in  Bank,  $8,679.11; 
Merchandise  on  Hand  at  the  Beginning  of  the  Year,  $9,500.60;  Purchases, 
$27,000;  Sales,  $42,805.42;  Return  Sales,  $168;  Interest  Paid,  $769.40; 
L.  S.  Carter,  Investment,  $15,725;  L.  S.  Carter,  Drawing,  $600;  F.  M. 
Gayer,  Investment,  $17,725;  F.  M.  Gayer,  Drawing,  Debit,  $760;  Furniture, 
$600;  Rent  Unexpired,  $250;  Insurance  Unexpired,  $160;  Good  Will,  $7,000;  . 
Inventory  on  Hand  at  the  End  of  the  Period,  $9,480;  Rent  for  the  Year, 
$1,200;  Insurance  Expired,  $180;  Interest  Accrued  on  Notes  Receivable,  $28; 
Wages  Accrued,  $116. 

Reserve  5%  for  depreciation  on  plant  and  machinery,  10%  for  deprecia- 
tion on  furniture.     Reserve  1%  of  the  sales  for  bad  debts. 

PROBLEM  28 

The  following  trial  balance  is  taken  from  the  ledger  of  Scott  and  Harrison. 
Prepare  adjusting  and  closing  entries,  and  operating  and  financial  statements. 

Trial  Balance  December  31,  1920 

Cash $    1,185.00 

Notes  Receivable 20,000.00 

Accounts  Receivable    58,100.00 

Reserve  for  Bad  Debts $    3,515.00 

21 


Inventory 28,955.00 

Real  Estate  8,650.00 

Buildings  and  Fixtures 24,000.00 

Reserve  for  Depreciation  on  Buildings  and  Fixtures  1,585.00 

Investments 3,500.00 

Good  Will  20,000.00 

Fuel  on  Hand 200.00 

Stationery  and  Office  Supplies,  Unused 400.00 

Insurance,   Unexpired    3,015.00 

Notes  Payable   15,000.00 

Accounts  Payable 47,820.00 

Notes  Receivable  Discounted 640.00 

Scott,  Investment  22,500.00 

Harrison,  Investment 22,500.00 

Sales 67,375.00 

Dividends  on  Investments 300.00 

Discount  on  Purchases 850.00 

Interest  Earned  25.00 

Advertising 6,035.00 

Delivery  Charge 600.00 

Salesmen's  Salaries 5,270.00 

Office  Salaries  2,000.00 

General  Office  Expense 200.00 


$182,110.00        $182,110.00 
Notations: 

Inventories: 

Prepaid  Insurance  $     2,500.00 

Office  Supplies 250.00 

Interest  Accrued  on  Notes  Receivable 300.00 

Interest  Accrued  on  Notes  Payable 115.00 

Fuel  Used  During  the  Period 175.00 

Taxes  Estimated  for  the  Year 240.00 

Accrued  Salaries  distributed  as  follows: 

Salesmen 425.00 

Office 160.00 

Merchandise  Inventory  January  1,  1920 50,000.00 

Purchases  During  the  Period 14,689.00 

Sales 103,109.00 

Cost  of  Sales 35,734.00 

PROBLEM  29 

The  following  are  the  totals  of  some  of  the  columns  of  a  Cash  Journal. 

With  the   necessary   additional   information   given,   prepare   a  trial   balance. 

National  Bank: 

Deposits $  18,000.00 

Checks 15,480.25 

Cash: 

Receipts 55,700.50 

Payments 55,325.18 

General  Debits: 

Furniture  and  Furnishings 2,400.00 

Unexpired  Insurance  250.00 

Good  Will  5,000.00 

Notes  Receivable 525.50 

Fuel  on  Hand 315.00 

Real  Estate 4,000.00 

Buildings 10,000.00 

Notes  Payable   4,000.00 

General  Credits: 

Y  Investment 39,940.00 

Accrued  Salaries  200.00 

Notes  Payable   6,250.00 

Reserve  for  Bad  Debts 128.00 

22 


Accounts  Receivable: 

Debit 4,000.00 

Credit 1,260.00 

Accounts  Payable: 

Debit 4,280.00 

Credit 10,924.00 

Discount  on  Purchases 170.00 

Salesmen's   Salaries   425.50 

Office  Salaries  80.00 

Sundry  General  35.25 

Taxes 90.00 

Postage 15.50 

Advertising 125.00 

The  Opening  Inventory  was $  21,040.00 

Purchases  for  the  Period 4,000.00 

Freight  on  Above 100.68 

Insurance  Carried  on  the  Stock 50.00 

Buying  Salaries  for  the  Period 168.50 

Cost  of  Sales 3,246.50 

Credit  Sales  were 1,460.50 

Cash  Sales  were 3,463.50 

PROBLEM  30 

The  following  are  the  totals  of  the  columns  of  a  cash  journal.     The  Gen- 
eral Ledger  terms  are  given  in  detail.     From  these  totals 

(a)  Prepare  trial  balance,  arranging  the  accounts  in  the  general  order. 

(b)  Prepare  that  section  of  the  operating  statement  which  gives  the 
gross  profit  on  merchandise  sold. 

The  National  Bank: 

Deposits  $  14,800.00 

Checks 11,130.11 

Cash: 

Receipts 45,699.75 

Payments 45,221.15 

General  Debits: 

Unexpired  Rent 300.00 

Unexpired  Insurance  200.00 

Good  Will  3,000.00 

Furniture  and  Furnishings 100.00 

Notes  Receivable    1,500.00 

General  Credits: 

X  Investment  35,000.00 

Accrued  Salaries   200.00 

Notes  Payable   5,000.00 

Reserve  for  Bad  Debts 500.00 

Accounts  Receivable: 

Debit 5,000.00 

Credit 125.00 

Accounts  Payable: 

Debit 1,000.00 

Credit 13,000.00 

Discount  on  Purchases 193.49 

Inventory: 

Debit 40,985.00 

(Opening  inventory  $35,000.00.) 

Credit 1,600.00 

Salesmen's  Salaries 300.00 

Advertising 75.00 

Sundry  Sales  Expense 25.00 

Office  Salaries 75.00 

Postage 10.00 

Sundry  General  Expense 55.00 

Sales: 

Debit 1,600.00 

Credit 2,755.00 

23 


PROBLEM  31 

Prepare  trial  balance  and  operating  and  financial  statements  as  of  January 
31,  1921.  • 

On  January  1,  1921,  the  financial  statement  of  X,  a  retailer,  was  as  follows: 

Furniture    and    Fixtures $2,000.00 

Cash 500.00 

Notes  Receivable 3,000.00 

Accounts  Receivable    5,000.00 

Merchandise  on   Hand 4,000.00 

$14,500.00 

Notes  Payable  $5,000.00 

Accounts  Payable 3,000.00 

X  Investment 6,000.00 

X    Drawing    500.00 

$14,500.00 

During  the  month,  the  bookkeeper  made  all  entries  in  the  cash  book  and 
in  the  sales  book,  but  made  no  journal  entries,  and  did  not  post  to  his  ledger; 

In  addition  to  the  entries  appearing  in  the  cash  book  and  on  the  sales 
book,  the  following  transactions  took  place  during  January :  Merchandise 
purchases  on  credit  amounting  to  $6,000,  and  notes  payable  amounting  to 
$3,000  renewed. 

The  Credit  Sales  Journal  had  two  columns — one  for  the  billed  amounts, 
and  the  other  for  the  cost  of  goods  sold.  The  billed  amount  was  $8,000  and 
the  cost  $5,000. 

The  following  statement  gives  a  summary  of  Cash  Receipts  and  Disburse- 
ments for  January. 

Cash  Received 

Collected  from  Customers  (Discount  of  $125  allowed). $4,000.00 

Collected  on  Notes  Receivable 2,000.00 

Collected  on   Merchandise   Sold  and  Not   Entered   on 

Sales  Book  (cost  $500) 600.00 


$6,600.00 


Cash  Payments 

Interest  on  Notes  Payable $      45.00 

Salaries 500.00 

Rent 200.00 

Sundry  Expenses   300.00 

Accounts  Payable  5,000.00 


$6,045.00 


PROBLEM  32 

(Wisconsin,  1916) 

(a)  State  three  methods  of  figuring  percentages  in  comparing  income 
and  expense.     Which  method  is  best  and  why? 

(b)  Explain  the  use  which  should  be  made  of  these  percentages  in  de- 
termining the  administrative  policies  of  a  business. 

(c)  The  three  summarized  operating  statements  following  are  those  of 
A,  B,  and  C,  respectively,  each  of  whom  conducts  his  business  as  a  sole 
proprietorship.  ^  They  decide  to  form  a  corporation  and  you  are  asked  for 
advice  as  to  which  of  the  several  phases  of  the  corporation's  business  should 

24 


be  assigned  to  A,  B,  and  C.    Write  a  concise  report,  stating  your  views  and 
giving  reasons  therefor: 

ABC 

Sales   (netj    $200,UU0.00        $100,UU0.00        $135,500.00 

Cost  of  i'roduction 13U,UOO.UO  6b,000.UU  8«,U0U.00 

Gross  Trading  Profit 70,000.00  32,000.00  47,500.00 

Trading  lixpense 26,300.00  13,150.00  20,325.00 

Net  Trading  Profit 43,700.00  18,850.00  27,175.00 

Administrative  Expense   17,865.00  10,000.00  12,000.00 

Net  Operating  Profit 25,835.00  8,850.00  15,175.00 

Add  Financial  Income 6,800.00  6,500.00  3,000.00 

32,635.00  15,350.00  18,175.00 

Deduct  Financial  Expense 2,400.00  1,000.00  4,175.00 

Net  Profit  $  30,235.00        $  14,350.00        $  14,000.00 

PROBLEM  33 

In  order  to  make  up  the  statements  on  December  31,  1920,  the  central 
office  of  a  manufacturing  company  required  from  all  the  branch  offices  a 
statement  of  the  inventory  at  cost  as  of  that  date. 

The  following  report  was  received  from  one  branch  office : 
Stock  on  hand  January  4,  1921— $9,000.00. 

Goods  received  from  December  31,  1920— January  4,  1921— $1,000.00. 
Sales  for  the  same  period  $2,000. 

Note:     All  amounts  are  figured  on  selling  price  which  includes  20% 
profit. 
Prepare  a  statement  of  the  inventory  at  cost,  on  December  31,  1920. 

PROBLEM  34 

Cash    $  1,000.00 

Accounts  Receivable   1,300.00 

Inventories  Jan.  1,  '19,  Men's  Furnishings 8,000.00 

General  Merchandise  7,750.00 

Real  Estate  3,750.00 

Buildings 10,000.00 

Furniture  and  Furnishings   2,000.00 

Unexpired  Insurance  450.00 

Notes  Payable   $  1,500.00 

Accounts   Payable    3,115.00 

Reed,  Investment  12,500.00 

Lee,  Investment   12,500.00 

Men's  Furnishing  Sales  27,500.00 

General    Merchandise    Sales    17,150.00 

Merchandise  Discount  on  Purchases 500.00 

Men's  Furnishing  Purchases   22,000.00 

General    Merchandise    Purchases 12,250.00 

Heat    175.00 

Light    150.00 

Advertising    500.00 

Janitor   Service    300.00 

Salesmen's    Salaries     3,300.00 

Sundry  Sales  Expense 50.00 

Repairs  to  Building  and  Fixtures 250.00 

Salaries,    Office     1,200.00 

Sundry  Office  Expense  165.00 

Interest  Paid   150.00 

Merchandise  Discount  on  Sales  25.00 


$74,765.00        $74,765.00 
25 


Notations: 
Reserve  2j^%  for  depreciation  on  building  and  fixtures. 
Reserve  5%  for  depreciation  on  furniture  and  furnishings. 
The  Taxes  for  the  year  estimated  at  $250.00. 
Insurance  for  the  year,  $300.00. 
Inventories,  December  31,  1919. 

Men's  furnishings,  $9,000.00. 

General  merchandise,  $7,000.00. 


PROBLEM  35 

The  trial  balance  of  the  firm  of  Holman  and  Birch  for  the  year  ending 
December  31,  1919,  is  as  follows: 

•       Cash    $    4,000.00 

Accounts  Receivable   5,200.00 

Inventories  Jan.  1,  1919: 

Groceries    32,000.00 

Crockery    31,000.00 

Real   Estate    15,000.00 

Building  and   Fixtures    40,000.00 

Furniture  and  Furnishings   8,000.00 

Unexpired  Insurance  1,800.00 

Notes    Payable    $    6,000.00 

Accounts    Payable    12,460.00 

Holman,  Investment   50,000.00 

Birch,  Investment 50,000.00 

Grocery  Sales   110,000.00 

Crockery    Sales    " 68,600.00 

Merchandise    Discount   on    Purchases 2,000.00 

Grocery  Purchases  88,000.00 

Crockery  Purchases  49,000.00 

Heat  •. 700.00 

Electricity     600.00 

Advertising   2,000.00 

Janitor  Service    1,200.00 

Salesmen's  Salaries    13,600.00 

Sundry  Sales   Expense    200.00 

Repairs  to  Building  and  Fixtures  1,000.00 

Salaries,   Office    4,800.00 

Sundry  Office  Expense  660.00 

Interest  Paid   600.00 

Merchandise    Discount    on    Sales    100.00 


$299,060.00        $299,060.00 
Notations: 

Reserve  2%  for  depreciation  on  buildings  and  fixtures. 

Reserve  5%  for  depreciation  on  furniture  and  furnishings. 

The  taxes  for  the  year  are  estimated  at  $500. 
Inventories  December  31,  1919: 

Groceries    $  18,000.00 

Crockery    14,000.00 


PROBLEM  36 

Cash    $     500.00 

Accounts  Receivable   2,000.00 

Inventories  January  1: 

Groceries    12,000.00 

Meats    10,000.00 

Building  and  Fixtures   13,000.00 

Furniture  and  Furnishings   2,000.00 


Real   Estate    3,000.00 

Unexpired   Insurance    500.00 

Notes  Payable  $  2,150.00 

Accounts  Payable  4,000.00 

James  Bickel,  Investment 15,000.00 

John   Salmon,   Investment    12,000.00 

Grocery    Sales    30,000.00 

Meat    Sales    20,000.00 

Merchandise  Discount  on  Purchases 400.00 

Grooery    Purchases    25,000.00 

Meat  14,000.00 

Heat  and  Light 125.00 

Advertising    175.00 

Salesmen's  Salaries    300.00 

Sundry    Sales    Expense     50.00 

Repairs  to  Building  and  Fixtures  25.00 

Office  Salaries   600.00 

Sundry    Office    Expense    125.00 

Interest  Paid   50.00 

Merchandise.  Discount  on  Sales 100.00 

$83,550.00        $83,550.00 
Notations: 

Reserve  3%   for  depreciation  of  Buildings  and  Fixtures. 

Reserve  5%  for  depreciation  of  Furniture  and  Furnishings. 

Taxes  for  period,  $200.00 

Insurance  for  period,  $250.00. 

Interest  accrued  on  notes  payable,  $50.00. 

Wages  unpaid,  $60.00. 
Inventories: 

Groceries,  $12,000.00. 

Meats,  $8,000.00. 

PROBLEM  37 

Kay  and  Keeley  operate  a  store  of  three  departments.  The  departmental 
accounts  for  the  year  1921  appear  as  follows : 

ABC 

Inventory,  Jan.  1 $  60,000.00        $  20,000.00        $  30,000.00 

Inventory,  Dec.  31   56,000.00  22,000.00  35,000.00 

Purchases    225,000.00  80,000.00  120,000.00 

Purchases,  Returns  and  Allowances       1,200.00  1,500.00  2,000.00 

Sales  (Gross  Profit  about  35%)....  300,000.00  110,000.00  200,000.00 

Sales  Returns  and  Allowances  ....  700.00  400.000  300.00 

The  direct  departmental  expense  accounts  kept  appear  as  follows : 

ABC 

Wages     $12,000.00        $    4,400.00        $    8,000.00 

Advertising     6,000.00  2,100.00  4,000.00 

Supplies    4,500.00  1,650.00  3,000.00 

Buying    9,000.00  4,000.00  7,000.00 

Depreciation     300.00  200.00  _     300.00 

Occupancy  charges,  including  heat,  light,  power,  housekeeping,  elevator, 
etc.,  total  $36,600.  Distribute  it  between  the  departments  on  the  average 
cost  of  such  charges,  6%  on  sales. 

Prepare  departmental  trading  accounts  showing  the  gross  and  the  net 
trading  profit,  and  also  an  operating  statement,  trading  section. 

PROBLEM  38 

The  balances  below  are  taken  from  the  trial  balance  of  a  store  having 
three  departments.    Show  the  closing  journal  entries : 

Dr.  Cr. 

Purchases   Department  A $3,000.00 

Purchases   Department   B 2,000.00 

Purchases   Department    C 500.00 

27 


Sales  Department  A $4,000.00 

Sales  Department  B 3,500.00 

Sales    Department    C    900.00 

Salesmen's  Salaries   700.00 

.Selling   Expenses    150.00 

Rent  of  Store   200.00 

Office   Expenses    175.00 

Interest  Paid   50.00 

Discount  on  Sales   100.00 


Merchandise  Inventories  at  close: 

Department  A  $1,200.00 

Department  B   700.00 

Department  C    200.00 

PROBLEM  39 

From  the  following  data,  prepare  the  appropriate  operating  statement  for 
the  month : 

Dept.  A  Dept.  B              Dept.  C 

Inventory,  May  1   $  7,000.00  $  4,000.00  $  6,000.00 

Inventory,  May  31   9,000.00  5,000.00              5,000.00 

Purchases    15,000.00  10,000.00              5,800.00 

Sales     21,200.00  19,000.00              9,500.00 

Direct   Dept.    Charges    4,000.00  3,000.00              2,500.00 

Other  items  to  be  considered  are  the  following: 
Office  Salaries,  $500.00. 
Postage,  $80.00. 

Telephone  and  Telegraph,  $35.00. 
Stationery  and  Printing,  $85.00. 
Depreciation,  Office  Equipment,  $25.00. 
Discount  on  Merchandise  Purchased,  $600.00 

PROBLEM  40 

(Illinois,  1917) 

The  Best  Stove  Co.  operates  a  retail  store  with  two  departments — X  and 
Y.  The  following  balances  appear  on  the  books  of  the  company  before 
closing  Dec.  31,  1919: 

Debit  Credit 

Accounts  Receivable    (all  good),   X $  15,000.00 

Accounts  Receivable  (all  good),  Y 6,125.00 

Accounts   Payable    $  25,423.00 

Advanced   to    B 1,075.00 

Bad  Debts,  (X,  $1,400.00;  Y,  $500.00) 1,900.00 

Barn  Rent  and  Expense   350.00 

Bank  Loans   12,000.00 

Notes  Receivable   650.00 

Cash  on  Hand 250.00 

Capital  Stock  20,000.00 

Discount  on  Purchases,  X 15,500.00 

Discount  on  Purchases,  Y 9,768.00 

Drivers'  Wages   2,400.00 

Feed  Used    640.00 

Furniture   and   Fixtures 5,000.00 

First  National  Bank  Deposit 2,496.00 

General    Advertising    7,720.00 

Horses,   Wagons,   etc 1,700.00 

Inventory  Jan.  1,  1919,  X 26,106.00 

Inventory  Jan.  1,  1919,  Y 15,000.00 

Insurance      1,125.00 

Interest  and  Discount  on  Notes  Payable 925.00 

Loan  from  A 7,000.00 

28 


Office  and   General   Expenses 1,200.00 

Purchases,    X     224,300.00 

Purchases,   Y    99,600.00 

Rent  and  Light  4,000.00 

Surplus     2,920.00 

Sales,  X  243,800.00 

Sales,  Y  106,500.00 

Salaries— Office  2,850.00 

Officers  10,000.00 

Salesmen,  X  7,553.00 

Y    4,946.00 

$442,911.00        $442,911.00 

The  books  were  closed  on  the  basis  of  th€  trial  balance  by  taking  up  the 
inventory  of  merchandise,  which  amounts  to  $33,400  for  Department  X  and 
$15,000  for  Department  Y.  Delivery  expenses  should  be  charged  equally  to 
the  two  departments  and  general  expenses  as  follows:  %  to  X  and  %  to  Y. 

Depreciation  should  be  provided  at  the  rate  of  10%  on  furniture  and 
fixtures' and  at  20%  for  horses,  wagons,  etc. 


PROBLEM  41 
(Wisconsin,  1918) 

(a)  The  following  figures  are  for  three  departments  of  a  store  in  the 
central  west.  You  are  to  prepare  a  table  such  as  you  would  present  to  the 
proprietor,  showing  for  each  department : 

1.     Cost  of  sales.  3.     Gross  profit. 

Percentage  of  cost  of  sales.  4.     Percentage  of  gross  profit. 

New  Inventory  at  end  of  month. 


Department 
A 
B 
C 


Dept. 
A 
B 
C 


Department 

A 
B 
C 


5. 

Inventory  First  of  Month — January  1,  1917 

Cost  Price 

$12,045.87 

, 2,264.00 

4,916.45 


Retail  Price 
$20,260.78 
3,911.62 
7,505.13 


Purchases 

Cost  Retail 

$260.25  $437.11 

259.34  419.74 

303.72  458.26 


Purchases  for  January 

Mark  Down         Mark  Up         Returned 


on  Cost 
$10.15 


on  Retail 


25.40 
27.25 


Cost 
$20.00 


Sales  for  January 


Sales 

.$1,332.94 
.  280.89 
.      909.09 


Purchases 
Retail 
$32.50 


Mark  Down 
on  Retail 
$0.99 
2.49 
3.20 


Depreciation  of  2%  is  figured  on  the  cost  of  all  purchases, 
(b)     What  basis  would  you  use  for  the  distribution  of  the  following  ex- 
penses among  departments?: 


1.  Insurance. 

2.  Rent. 

3.  Delivery  expense. 


4.  Show  window  expense. 

5.  Advertising. 

6.  General  administrative  expense. 


29 


PROBLEM  42 

1.  A,  B,  and  C  were  partners  with  investments  of  $12,000,  $8,000,  and 
$4,000,  respectively.  The  net  profit  for  the  year  was  $5,987.50,  after  paying 
C  a  salary  of  $1,500,  which  was  charged  to  Salary  account. 

The  net  profit  is  to  be  divided  according  to  the  investment. 
Required :  the  net  profit  of  each  partner ;  the  present  worth  of  each. 

2.  D  and  E  made  equal  investments  as  partners.  D's  drawing  account 
shows  a  debit  balance  of  $1,750,  and  E's  a  credit  balance  of  $437.50. 

The  following  are  the  assets  and  liabilities : 

Cash $    540.85 

Merchandise    Inventory     .  . . . ' 894.20 

Accounts  Receivable   4,552.50 

Accounts   Payable    5,675.30 

Notes  Payable  1,025.60 

The  accounts  receivable  are  worth  80c  on  the  dollar. 

Required:  the  present  condition  of  the  business.  If  each  partner,  from 
his  private  funds,  pays  one-half  of  the  firm's  indebtedness,  how  much  should 
D  pay  E  to  adjust  matters  between  the  partners? 

3.  Warren  Phelps  and  H.  M.  Brown  are  each  engaged  in  the  dry  goods 
business.  They  decide  to  unite  their  business  interests  and  form  a  partner- 
ship. 

Phelps  makes  the  following  investment : 

Cash $9,000.00 

Merchandise    Inventory    5,280.00 

Accounts  Receivable   4,235.00 

Notes  Receivable   1,350.00 

Interest  Accrued  on  Above 62.50 

5%  of  the  accounts  receivable  are  not  collectible. 

Brown  makes  the  following  investment : 

Cash   $4,000.00 

Merchandise   Inventory    3,250.00 

Accounts  Receivable   2,320.00 

Notes  Receivable   650.00 

Discount  Allowed  on  Above 8.90 

10%  of  the  accounts  receivable  are  not  collectible. 

(a)  How  should  each  partner  close  the  books  of  his  business? 

(b)  How  would  the  books  of  the  new  business  be  opened? 

(c)  What  is  the  opening  journal  entry  for  the  new  business? 

4.  Horace  Porter  and  \Ym.  Duncan  began  business  as  a  partnership, 
under  the  following  conditions : 

Mr.  Duncan  invests  cash,  $10,000;  Mr.  Porter  makes  no  cash  investment, 
as  he  is  without  capital,  but  is  especially  skilled  in  the  details  cf  the  business 
undertaken,  Mr.  Porter  is  to  conduct  the  business  and  direct  all  of  its  affairs. 
All  profits  realized  are  to  be  divided  equally. 

(a)     Note  some  things  that  should  be  named  in  the  articles  of  agree- 
ment, 
(b)     What  opening  entry  would  be  made  at  the  beginning  of  busi- 
ness? 

(c)  What  entries  would  be  made  in  Duncan's  ledger  accounts? 

(d)  What  entries  would  be  made  in  Porter's  ledger  account? 


PROBLEM  43 

1.  Henry  M.  Johnson  admits  you  as  an  equal  partner  in  his  business.  A 
statement  shows  the  following: 

Cash    $   750.00 

Merchandise    Inventory    4,780.00 

Office  Furniture    320.00 

Accounts  Receivable   2,136.00 

Accounts    Payable 1,145.00 

Notes   Receivable    896.00 

Discount  Allowed  on  Above 6.84 

Notes  Payable   612.00 

Interest  Accrued  on  Above 5.08 

Unpaid  Rent  Amounts  to 65.00 

Unpaid    Freight    in 22.45 

Good  Will  Estimated  at. 1,000.00 

5%  of  the  accounts  receivable  are  not  collectible. 

You  purchase  a  half  interest  in  the  business,  giving  Johnson  your  note 
for  $2,000,  indorsed  by  S.  M.  Winn,  for  one  year,  with  interest  at  6%,  and 
cash  for  the  balance  of  your  investment. 

(a)  Make   a    statement   of   the    business,   showing  Johnson's   present 
worth. 

(b)  What  is  the  amount  of  your  investment,  and  what  are  the  proper 
entries  for  the  same? 

(c)  It  is  decided  to  open  an  entirely  new  set  of  books;  bow  would  th  ; 
old  books  be  closed  and  the  new  books  opened? 

2.  Provin,  Hasson  &  Little  began  business  under  the  following  condi- 
tions: Capital  stock,  $25,000;  Provin  invested  $15,000;  Hasson  invested 
$6,000;  Little  borrowed  $4,000  of  Provin  and  invested  it  in  the  business.  All 
investments  were  paid  in  cash. 

Required  :  the  opening  entry. 

3.  Pratt  &:  Hardy  are  equal  partners.  They  decide  to  borrow  cash,  $3,000, 
as  a  means  of  increasing  their  business,  giving  a  real  estate  mortgage  as  se- 
curity. 

(a)  What  entry  would  be  made  for  the  money  borrowed? 

(b)  If  the  money  borrowed  was  used  as  a  permanent  mcrease  of  the 
firm's  capital,  what  advance  of  money,  and  what  entries  would 
have  to  be  made  when  the  mortgage  was  paid? 

(c)  What  ledger  accounts  would  be  affected? 

PROBLEM  44 

In  each  of  the  following  problems  make  the  necessary  entries  on  the 
hooks  to  admit  the  new  partner. 

1.  On  January  1.  1921,  Mr.  H.  C.  Batch  offered  to  pay  H.  L.  Gaston 
$16,000  for  a  half  interest  in  his  business.  The  books,  which  were  closed 
December  31,  1920,  showed  Mr.  Gaston's  net  worth  to  be  $28,000  on  that  date. 

The  offer  was  accepted. 

2.  The  net  worth  of  J.  M.  Brown,  wholesale  grocer,  on  September  1, 
1921,  was  $12,550.  On  that  date  H.  H.  Bloom  acquired  a  third  interest  in  the 
business  by  paying  $9,000  cash  to  the  credit  of  the  firm. 

3.  The  books  of  Benedict  and  Anderson  showed  their  investments  on 
June  30,  1921,  the  date  of  closing  the  books,  to  be  as  follows: 

O.  J.  Benedict $12,000.00 

M.  E.  Anderson 14,500.00 

81 


The  profits  and  losses  in  the  business  were  shared  %  to  Benedict  and  %  to 
Anderson. 

On  the  above  date  B.  O.  Kinney  was  admitted  as  a  partner,  the  new  firm 
to  be  called  Anderson  and  Company.  The  agreement  between  the  partners 
provided  that  the  new  firm  was  to  take  over  the  assets  and  goodwill  of  Mr. 
Kinney,  and  in  return  he  was  to  have  a  1/5  interest  in  the  business. 

The  assets  of  Mr.  Kinney  were : 

Merchandise  ^^'^^2-52 

Notes  Receivable   HfS'^ 

Accounts  Receivable 2,610.00 


PROBLEM  45 

1.  Dewey  &  Clark  are  partners.    At  the  close  of  one  year's  business  the 
accounts  of  the  proprietors  were  as  follows : 

Dewey,  Investment    $7,500.00 

Dewey,  Drawing,  Dr 350.00 

Clark,   Investment    7,500.00 

Clark,  Drawing.  Dr 300.00 

The  profit  and  loss  account  showed  the  following  items : 

Merchandise  Sales,  Profit $2,356.70 

Sundry    General    Expense 43.20 

Salaries 500.00 

Interest  Paid   32.75 

Merchandise  Discount  on  Purchases 58.93 

Collection   and   Exchange 6.12 

Interest    Earned    45.20 

Merchandise  Discount  on  Sales 33.25 

Close  the  profit  and  loss  account,  and  show  the  present  worth  of  each 
partner. 

2.  Hart  &  Crowson  are  partners.    At  the  close  of  one  year's  business  the 
accounts  of  the  proprietors  were  as  follows : 

Hart,  Investment   $5,000.00 

Hart,  Drawing,  Dr 250.00 

Crowson,  Investment    5,000.00 

Crowson,  Drawing,  Dr 320.00 

The  profit  and  loss  account  showed  the  following  items : 

Merchandise  Sales,  Loss $2, 186.45 

Sundry    General    Expense 50.00 

Salaries  . 400.00 

Interest    Paid    56.25 

Merchandise  Discount  on  Purchases 84.50 

Interest  Earned  24.35 

Merchandise  Discount  on  Sales 33.60 

Close  the  profit  and  loss  account  and  show  the  present  worth  of  each 
partner. 

(a)  Analyze  each  account. 

(b)  What  per  cent  of  the  total  investment  is  the  net  loss? 

(c)  What  two  things  diminish  the  proprietor's  present  worth? 


PROBLEM  46 

Meyer  and  Smith  began  a  partnership  business  on  January  1,  1919.  At 
the  time  of  closing  the  books  on  December  31,  1919,  an  examination  of  the 
capital  accounts  revealed  the  following  facts : 


January  1— Meyer  paid  in $10,000.00 

January  1 — Smith  paid  in 7,500.00 

May  1 — Meyer  drew  out 1,600.00 

June  1— Smith  drew  out 1,000.00 

July   1— Smith  paid  in 6,000.00 

July  1— Meyer    drew    out 3,000.00 

October  1— Smith  drew  out 3,000.00 

November  1— Smith  drew  out 2,300.00 

December    1— Smith    paid    in 5,000.00 

December  1 — Meyer  paid  in 4,000.00 

December  31 — Meyer   drew   out 5,000.00 

The  sales  for  the  period  were  $7,260.  The  purchases  were  $6,180,  and  the 
inventory  on  December  31  was  $4,280.  The  cash  on  hand  was  $3,650. 
Customers  owed  the  firm  $6,800  on  account.  Notes  receivable  amounted  to 
$4,694.  The  accounts  payable  showed  a  balance  of  $3,688.  The  notes  payable 
outstanding  amounted  to  $1,280.  The  interest  paid  was  $125.  The  selling 
expenses  amounted  to  $4,689  and  the  administration  expenses  were  $2,690. 

The  profit  or  loss  is  to  be  divided  in  proportion  to  each  partner's  capital, 
and  in  proportion  to  the  time  it  was  invested  in  the  business. 

(a)  Prepare  an  operating  statement, 

(b)  Prepare  a  financial  statement, 

(c)  Show  each  partner's  accounts  after  all  closing  entries  have  been 
made. 

PROBLEM  47 

1.  Make  the  statements;  the  results  will  show  the  net  profit  (^r  the  net 
loss  for  one  year. 

All  profits  or  losses  are  to  be  shared  equally ;  each  partner  is  to  receive 
6%  on  all  investments. 

Required  :  the  amount  due  each  partner  at  the  end  of  the  year. 

Frank  Melville  and  John  F.  Brown,  partners,  conduct  a  general  merchan- 
dise business  under  the  firm  name  of  Melville  &  Brown. 

The  stateinents  are  to  be  made  from  the  following  data : 

Frank   Melville,   Investment $25,000.00 

John   F.    Brown,    Investment 20,000.00 

Merchandise    Bought    78,240.00 

On  Hand  at  Close  of  the  Year 12.564.50 

Sold  74,312.25 

Real  Estate,  Cost 5.000.00 

Building  and    Fixtures 12,500.00 

Depreciation  for  1   Year 625  00 

Notes  Receivable 10,775.20 

Interest  Accrued  on  Notes  Receivable 225.50 

Delivery  Equipment,  Value  at  Close  of  Year 1,120.00 

Office  Furniture,  Value  at  End  of  Year 1,350.00 

Sundry    General    Expense 350.00 

Salaries ' 2,000.00 

Traveling   Expenses    1,125.00 

Accounts  Receivable    19,685.50 

Cash   20,167.30 

Mortgage  Payable,  on  Real  Estate  and  Building 9,750.00 

Interest  Accrued  on  Above 275.00 

Notes    Payable    3.650.00 

Interest  Accrued  on  Above 125.00 

Accounts    Payable    12.200.00 

Merchandise  Discount  on  Sales 384.30 

Merchandise  Discount  on  Purchases 252.50 

The  account  of  John  F.  Brown  is  to  be  credited  with  $1,600  from  the 
profits  of  the  business,  for  special  services,  before  the  apportionment  of  profit 
and  loss  is  made. 

July  1  Frank  Melville  withdrew  $500  from  the  business. 

33 


2.  In  the  partnership  of  A  and  B  you  find  that  the  agreed  division  of 
profit  and  loss  was  to  be  on  the  basis  of  the  capitals  contributed  and  of  the 
time  that  they  were  left  in  the  business. 

The  books  show  as  follows:  A's  account,  paid  on  Jan.  1,  $6,000;  March 
1,  $2,000;  June  1,  $4,000;  November  1,  $1,000;  withdrew,  April  1,  $3,000; 
withdrew  October  1,  $2,000. 

B's  account,  paid  on  January  1,  $4,000;  February  1,  $1,000;  August  1, 
$3,000;  withdrew.  May  1,  $2,000;  December  1,  $1,000. 

Prepare  a  statement,  showing  method  of  arriving  at  the  correct  profit 
distribution. 


PROBLEM  48 

1.  A,  B,  and  C  invested  equal  amounts,  and  agreed  to  share  all  results 
equally.  When  the  firm  dissolved  the  assets  amounted  to  $15,000.50,  and  the 
liabilities  to  $18,520.50.    The  net  loss  was  12,520. 

Required :  each  partner's  insolvency  at  dissolution ;  each  partner's  invest- 
ment at  the  beginning  of  the  business. 

2.  A  and  B  engaged  in  business  as  partners,  investing  $10,000  and  $5,000, 
respectively.  They  agreed  to  share  all  profits  or  losses  in  proportion  to  the 
investment.     At  dissolution  the  following  were  the  assets  and  liabilities : 

Cash    $  2,350.00 

Notes  Receivable 4,275.00 

Real    Estate    3,000.00 

Merchandise    Inventory    10,750.00 

Accounts  Receivable   7,775.00 

Notes  Payable  .• • 1,745.00 

Accounts   Payable 5,255.00 

10%  of  the  accounts  receivable  cannot  be  collected. 

If  tl.c  v;artnership  lasted  one  year,  and  A  withdrew  $975  and  B  $1,025  as 
their  salaries,  what  is  each  partner  worth? 

3.  Y  and  Z  make  equal  investments  in  a  total  capital  of  $9,000.  During 
the  year  each  partner  added  $500  to  his  capital. 

At  the  end  of  the  year  the  books  showed  the  following  assets  and  liabili- 
ties : 

Real  Estate $3,275.50 

Cash    1,432.75 

Accounts    Payable    1,354.00 

Notes  Receivable    1,750.00 

Notes  Payable   1,672.50 

Office   Furniture    328.40 

Delivery  Equipment    425.60 

Accounts  Receivable    2,345.25 

Merchandise    Inventory    2,242.50 

At  the  close  of  one  year  what  amount  was  due  each  partner,  the  profits 
or  the  losses  being  shared  equally? 


PROBLEM  49 

(Adapted  from  English  Intermediate  Examination,  May,  1912) 

1.     A  and  B  have  separate  businesses,  and  they  agree  to  amalgamate  and 
enter  into  partnership.    The  firm  take  over  the  following  assets  and  liabilities : 

34 


From   A  From  B 

Land  and  Buildings   $50,000.00     Stock  in  Trade   $30,000.00 

Notes    Payable    15,000.00    Accounts   Payable   25,000.00 

Plants  and  Machinery 25,000.00     Accounts    Receivable    50,000.00 

Stock  in  Trade 15,000.00     Cash  at  Bank   10,000.00 

Work  in  Progress  5,000.00 

Accounts   Receivable    26,750.00 

Accounts    Payable   30,000.00 

Notes  Receivable  10,000.00 

Cash  at  Bank   5,000.00 

Mortgage   Creditor   40,000.00 

Make  the  opening  journal  entries,  and  prepare  opening  financial  statement. 

2.  On  December  31,  1910,  three  partners  had  the  following  amounts  at 
the  credit  of  their  investment  accounts  : 

A.  $25,000;  B,  $15,000;  C,  $10,000. 

On  January  1,  1910,  they  had  to  the  credit  of  their  drawing  accounts: 
A,  $3,750;  B.  $2,500;  C,  $2,000. 

Profits  are  divided  in  the  same  proportion  as  the  capital  up  to  $10,000. 
Above  that  amount,  A  gets  25%,  B  35%  and  C  40%. 

A  drew  during  the  vear  1910 $2,500.00 

B  drew  during  the  year  1910 2,000.00 

C  drew  during  the  year  1910 1.500.00 

The  profits  for  1910  amounted  to  $15,000. 

Give  the  drawing  accotmt  of  each  partner  on  December  31,  1910. 

(Adapted  from  Intermediate  Examination,  March,  1910) 

3.  X,  Y,  and  Z  are  in  partnership  and  on  January  1,  1909,  their  respective 
capitals  were  $20,000,  $13,900  and  $7,950.  Y'is  entitled  to  a  salary  of  $1,250 
and  Z  to  one  of  $1,000  per  annum,  payable  before  division  of  profits.  Of  the 
net  divisible  profits  X  is  entitled  to  40%  of  the  first  $5,000,  Y  to  35%,  and  Z 
to  25%  ;  over  that  amount  profits  are  shared  equally.  The  profit  for  the  year 
ended  December  31,  1909,  after  debiting  partners'  salaries,  but  before  charging 
interest  on  capital,  was  $11,585.  and  the  partners  had  drawn  $4,000  each  on 
account  of  salaries,  interest,  and  profits.  Prepare  the  closing  entries  of  the 
profit  and  loss  account  and  the  partners'  accounts  for  the  year. 


PROBLEM  50 

L.  M.  Harris  and  F.  C.  Gates,  decide  to  combine  their  retail  business, 
F.  C.  Gates  agreeing  tc  nay  in  cash  an  amount  suf^cient  to  make  him  an  equal 
partner. 

Harris'  assets  and  liabilitle^  are:  cash  $1,000;  merchandise  $4,280;  notes 
receivable  $1,500;  with  accrued  interest  on  same  $10.75:  accounts  receivable 
$985,  estimated  as  Avorth  $960;  furniture  $980;  notes  payable  $1,000;  with 
accrued  interest  on  same  $10;  accounts  payable  $415. 

Gates'  assets  and  liabilities  are:  cash  $400;  merchandise  $4,800;  accounts 
receivable  $1,416;  valued  at  $391;  notes  receivable  $1,500;  accounts  payable 
$300;  notes  payable  $1,460:  Avith  accrued  interest  on  same  $8.69;  i.alaries 
earned  but  unpaid  $58;  notes  receivable  discounted  $1,000. 

All  the  assets  are  taken  over  at  book  value.  Make  the  journal  entries 
for  each  partner  to  close  his  old  set  of  books  ;  the  opening  journal  entries  ;  and 
*he  opening  financial  statement  for  the  new  firm. 

SB 


PROBLEM  51 
(Adapted  from  English  Examination,  May,  1908) 

The  following  is  the  Trial  Balance  of  A.  Jumble  and  T.  Sale  on  December 

31,  1907: 

A.  Jumble,  Capital  Jan.  1 $  60,000.00 

T.  Sale,  Capital  Jan.  1 45,000.00 

Machinery  and  Plant $  50,000.00 

Stock,  Jan.   1 27,500.00 

Purchases 110,000.00 

Salaries 5,000.00 

Wages 22,500.00 

Sales 175,000.00 

Debtors 45,000.00 

Creditors 28,000.00 

Freight 2,350.00 

Rent,  Taxes,  and  Insurance 6,000.00 

Discount  Lost   150.00 

A.  Jumble.  Salary 3,000.00 

T.  Sale,  Salary 2,000.00 

Cash  at  Bankers 21,500.00 

Repairs 1,250.00 

Fuel 5,500.00 

Notes  Payable  3,750.00 

Notes  Receivable 1,875.00 

Cash  in  Hand 125.00 

$303,750.00        $303,750.00 

The  stock  at  the  end  of  the  year  amounted  to  $30,000. 

Prepare  proper  revenue  accounts,  the  partners'  accounts  and  the  financial 
statement. 

Each  partner  is  to  have  5%  interest  on  his  capital ;  the  profits  and  losses 
are  to  be  divided,  two-thirds  to  A.  Jumble  and  one-third  to  T.  Sale;  7^^ 
depreciation  is  to  be  written  off  machinery  and  plant;  $1,750  is  to  be  reserved 
for  bad  debts;  and  insurance,  amounting  to  $1,500  paid  for  the  year  ending 
March  31,  1908,  has  to  be  apportioned. 

PROBLEM  52 

(Adapted  from  English  Examination,  Nov.-Dec,  1910) 

A  and  B  carried  on  business  as  pottery  manufacturers  at  Hanley,  under 
the  style  of  A,  B  and  Co.  They  dissolved  partnership  on  March  31,  1909,  A 
retiring  from  the  business  and  B  continuing  to  carry  it  on  under  the  same 
style  and  purchasing  A's  share  therein  at  the  amount  shown  as  his  capital 
at  March  31,  1909,  after  a  proper  re-valuation  of  the  assets. 

The  firm's  balance  sheet  at  December  31,  1908,  was  as  follows: 
Assets  Liabilities 

Land  and  Buildings $  50,000.00  Accounts   Payable    $  25,000.00 

Plant  and  Machinery 30,000.00  Notes  Payable  7,500.00 

Equipment  and  Tools 15,000.00            A-tortgage  on  Land  and  Build- 
Merchandise  Inventory   45,000.00  ings  at  4% 37,500  00 

Accounts  Receivable 37,500.00  A,  Capital   72,500  00 

Notes  Receivable   5,000.00  B,  Capital   47;S00.00 

Cash  in  Hand  and  at  Bank 7,500.00 


$190,000.00  $190,000.00 

Profits  and  losses,  both  of  Revenue  and  Capital,  were  divided  in  the  pro- 
portion of  A,  two-thirds,  and  B  one-third. 

The  re-valuation  at  March  31  resulted  as  follows:     Land  c.nd  Buildings, 

36 


$45,500;  Plant  and  Machinery,  $28,000;  Equipment  and  Tools,  $17,500;  Stock 
in  Trade,  $40,000. 

The  other  assets  at  that  date  were  agreed  as  follows :  Accounts  Receiv- 
able, $42,500;  Notes  Receivable,  $3,000;  Cash  in  hand  and  at  Bank,  $10,000. 

The  liabilities  were:  Loan  on  Mortgage  at  4%,  $37,500  (interest  paid  to 
31st  December,  1908J  ;  Notes  Payable,  $5,000,  Accounts  Payable,  $17,500. 

Make  out  the  necessary  adjustment  accounts  and  Financial  Statement  on 
March  31,  1909. 

PROBLEM  53 

The  following  are  the  sectional  and  columnar  headings  (left  to  right)  of 
a  subscription  ledger  used  by  the  Acme  Company : 
Date. 

Number  of  shares  subscribed. 
Unit  value. 
Total  amount. 
Installments: 

No.  1—50%. 

No.  2—25%. 

No.  3—25%. 
Date: 

Called. 

Paid. 
Installments: 

No.  1—50%. 

No.  2—25%. 

No.  3—25%. 
Balance. 

You  are  asked  to  draw  the  form  and  to  record  the  following  facts  in  the 
appropriate  spaces : 

On  December  1,  19 — ,  John  White  subscribed  to  25  shares  of  common  stock 
in  the  Acme  Company,  par  value,  $100.  The  conditions  under  which  the 
stock  is  issued  are  as  follows :  One-half  the  purchase  price  due  with  the  sub- 
scription and  quarter  to  be  called  on  February  1  and  the  last  installment  of 
25%  to  be  called  on  April  1.  John  White  pays  the  first  installment  at  time 
of  subscription,  the  second  on  December  3  and  the  third  on  April  5. 


PROBLEM  54 

(a)     The  following  are  the  sectional  and  columnar  headings  (left  to  right) 
of  the  stock  ledger  used  by  the  Baker  Company : 
Date. 
Number  of  Certificates: 

Issued. 

Cancelled. 
Number  of  Shares: 

Debit. 

Credit. 

Balance. 
How  Paid. 

From  Whom  Transferred. 
To  Whom  Transferred. 

You  are  asked  to  draw  the  form  and  to  record  the  following  facts  in  the 
proper  spaces  of  the  stock  ledger  accounts  with  John  White,  Joe  Brown  and 
Sam  Black : 

On  December  1,  19 — ,  each  of  the  three  gentlemen  subscribed  for  20  shares 

87 


of  stock  in  the  company  and  paid  for  it  in  cash.  On  January  2,  19 — ,  Brown 
sold  White  10  shares  at  110  per  share;  on  March  15,  19 — ,  Black  bought  5 
shares  of  Brown  at  115;  on  June  1,  19 — ,  White  sold  Black  15  shares  at  112;^ 
and  on  June  15  Brown  repurchased  the  shares  sold  W^hite  on  January  2,  at 
108. 

(b)  The  Clark  Company  uses  the  form  as  above  described  with  the  addi- 
tion of  three  columns  for  the  amount  of  the  shares — Debit,  Credit  and  Bal- 
ance. 

You  are  asked  to  draw  the  form  and  to  record  properly  the  same  facts  as 
given  under  "a." 

PROBLEM  55 

The  following  are  the  columnar  headings  (left  to  right)  of  the  stock  trans- 
fer book  used  by  the  Drane  Company: 
Date. 

Number  of  Cancelled  Certificate. 
Number  of  Shares. 
By  Whom  Surrendered. 
To  Whom  Issued? 
Number  of  New  Certificate. 
Number  of  Shares. 
You  are  asked  to  draw  the  form  and  to  record  the  following  information 
in  the  appropriate  spaces : 

The  same  facts  are  to  be  used  as  in  Problem  43 ;  the  certificate  numbers 
are  as  follows : 

Original  Certificate  to  White,  No.  12. 

Original  Certificate  to  Brown,  No.  14. 

Original  Certificate  to  Black,  No.  15. 

Jan.  2 — Transaction:  New  Certificate  issued  White,  No.  48;  new  Cer- 
tificate issued  Brown,  No.  49. 

Mar.  15 — Transaction:  New  Certificate  issued  Brown,  No.  90;  new  Cer- 
tificate issued  Black,  No.  91. 

June  1 — Transaction:  New  Certificate  issued  Black,  No.  141;  new  Cer- 
tificate issued  White,  No.  142. 

June  15 — Transaction:  New  Certificate  issued  Brown,  No.  198;  new  Cer- 
tificate issued  White,  No.  199. 


PROBLEM  56 

(Pennsylvania,  1900) 
Make  the  necessary  opening  entries  in  the  stock  ledger,  cash  book,  and 
subscription  books  of  a  company  having  an  authorized  capital  of  $100,000, 
$75,000  of  which  is  subscribed  for,  and  on  $50,000  of  which  an  installment  of 
50%  has  been  paid.  Nothing  has  been  paid  on  the  balance  of  the  subscribed 
stock. 

The  stockholders  and  their  holdings  are  as  follows : 

A    $20,000.00 50%      paid 

B        4,000.00 

C       16,000.00 

D        2,000.00 

E        2,000.00 

F        2,000.00 

G        2,000.00 

H        2,000.00 

I        10,000.00 nothing  paid 

J         5,000.00 

K        5,000.00 

L        5,000.00 

38 


PROBLEM  57 

The  Farm  Tractor  Company  incorporated  on  December  1,  1918,  in  the 
state  of  North  Dakota,  for  5,000  shares  of  common  stock  and  2,000  shares  of 
preferred;  the  par  value  of  each  being  $100.  The  stock  subscription  books 
show  the  following  signatures : 

Common  Stock  Subscription  Book 

Name  No.  of  Shares  Amount  Paid  How  Paid 

R.  L.  Weeks 5,000  100%  Cash,  Property 

and  Services 
(see  note  below) 
Preferred  Stock  Subscription  Book 

R.  L.  Weeks 500        30%         By  Check 

L.V.Bond 200        30% 

N.  K.  Giles 100        30% 

H.  S.  Rand 175        30% 

J.  T.  Noyes 125        30% 

On  June  1,  1919,  the  second  installment  of  20%  was  paid  on  the  preferred 
stock  and  scrip  receipts  were  issued  for  the  amount  paid  in  to  the  subscribers 
in  the  order  listed  above.  On  the  same  date  R.  L.  Weeks  donated  1,000  shares 
of  common  stock  to  the  treasury  for  working  capital.  R.  Brand  then  pur- 
chased 100  shares  of  this  treasury  stock  at  90,  E.  Jones  200  shares  at  95, 
F.  Schmidt  100  shares  at  98,  M.  Lund  100  shares  at  par,  and  the  certificates 
were  issued  to  them. 

On  December  1,  1919,  the  preferred  stock  subscribers  paid  in  the  remain- 
ing 50%  and  the  necessary  certificates  were  issued. 

The  profits  for  the  year  were  $60,000  and  a  7%  dividend  was  declared  on 
both  the  common  and  preferred  stocks.  The  remaining  500  shares  of  common 
stock  were  sold  at  105,  upon  this  indication  of  prosperity,  to  K.  Thon.  R. 
L.  Weeks  sold  100  shares  of  preferred  stock  to  E.  Hunt  and  turned  in  cer- 
tificate number  1,  from  which  the  transfer  is  to  be  made. 

From  the  above  facts  prepare  the  following : 

1.  Journal  entries  to  record  all  stock  transactions,  including  the  decla- 
ration of  the  dividend  and  the  donation  and  sale  of  the  Treasury 
Stock. 

2.  Subscription  Ledger. 

3.  Stock  Ledger. 

Note  :  Proportion  of  Cash  30%. 

Property  (Plant  and  Machinery)  50%. 

Services  20%. 
New  certificate  numbers  are  to  be  provided  for  all  exchanges  and  for  the 
issue  of  Treasury  Stock. 

PROBLEM  58 

The  Martin  Company  was  organized  and  incorporated  January  1,  1922, 
for  the  purpose  of  manufacturing  concrete  mixers. 

The  Authorized  capital  of  $200,000  consisted  of  1,500  shares  of  common 
stock,  having  a  par  value  of  $100  per  share,  and  500  shares  of  preferred  stock 
of  the  same  par  value. 

The  following  subscribed  and  paid  for  the  common  stock : 

James  Carmen,  500  shares  paid  in  cash; 

Alvin  Lilly,  250  shares  by  transferring  the  following  assets  and  liabilities: 

39 


cash  $35,000;  notes  receivable  $26,000;  merchandise  $15,000;  accounts  re- 
ceivable $8,000;  furniture  $6,000;  accounts  payable  $40,000;  notes  payable 
$25,000 ; 

Herscy  Halvorson,  400  shares,  paying  one  half  in  cash  and  the  balance 
payable  at  the  end  of  the  first  year ; 

Fred  Gilbert,  350  shares,  by  giving  his  personal  note  for  $35,000  payable 
one  year  after  date. 

The  following  organization  expenses  were  paid  in  cash:  filing  fees  $200; 
legal  expenses  $400;  inspection  trips  $600. 

Of  the  500  shares  of  preferred  stock,  250  shares  were  sold  to  outsiders 
for  cash. 

(a)  Give  the  opening  journal  entries. 

(b)  Prepare  the  opening  financial  statement  of  the  corporation. 


PROBLEM  59 

The  American  Chocolate  Company  was  organized  by  James  Phipps, 
Henry  Borman,  and  William  Jennings,  who  signed  the  certificate  of  incor- 
poration and  subscribed  for  ten  shares  each.  The  certificate  of  incorporation 
was  filed  by  the  Secretary  of  the  State  of  New  York  on  July  1,  1912.  The 
authorized  capital  stock  was  $100,000  divided  into  one  thousand  (1,000)  shares 
of  the  par  value  of  $100  each.  The  subscribers  paid  for  their  stock  on  July  1. 
The  organization  tax  and  filing  fees  amounted  to  $54.20. 

The  certificates  issued  to  the  incorporators  were  numbered  1,  2  and  3  in 
the  order  the  names  appear  above.  During  the  six  months  subsequent  to 
July  1  the  following  transactions  took  place : 

July  23,  J.  F.  Dominick  bought  100  shares  and  received  certificate  No.  4 ; 
August  10,  A.  J.  Hudson  subscribed  for  5  shares  and  paid  25%  on  account; 
August  20,  the  incorporators  subscribed  for  500  shares  and  paid  25%  on 
account;  August  28,  certificate  No.  5  for  100  shares  was  issued  to  A.  E. 
Pratt  for  land ;  September  4,  paid  contractor  $5,000  on  account  of  building 
contract  of  $40,000;  September  10,  incorporators  paid  25%  on  account  of 
stock;  September  12,  paid  contractor  $15,000;  September  14,  issued  cer- 
tificate No.  6  for  50  shares  to  R.  E.  Holmes  for  patents  on  machinery ;  Septem- 
ber 17,  bought  machinery  for  $10,000,  paying  $5,000  on  account  and  giving 
notes  for  the  balance ;  September  20th,  Dominick  sold  25  shares  to  James 
Powers  (new  certificates  No.  7  and  No.  8)  ;  September  24,  incorporators 
paid  balance  due  on  stock,  except  Jennings,  who  gave  a  note  for  $5,000  for 
part  of  the  amount  due  from  him ;  certificates  were  issued — No.  9  to  Phipps 
for  200  shares.  No.  10  to  Borman  for  200  shares,  and  No.  11  to  Jennings  for 
100  shares ;  October  10,  paid  balance  on  building  contract ;  October  12, 
William  Mortimer,  attorney,  rendered  a  bill  of  $500  for  services  in  connection 
with  the  organization  of  the  company ;  October  14,  H.  Britton  subscribed 
for  15  shares  of  stock  and  paid  50%  on  account;  October  18,  Dominick 
.sold  5  shares  each  to  D.  Read,  H.  Robinson,  and  F.  Stone  (new  certificates 
No.  12,  No.  13,  No.  14,  No.  15)  ;  October  30th,  Hudson  refused  to  make  fur- 
ther payments  on  his  subscription  and  it  was  cancelled;  October  3r,  Borman 
.  pledged  100  shares  of  his  stock  as  collateral  for  a  loan  of  $5,000  from  the 
Park  National  Bank. 

From  the  foregoing  prepare : 

(a)     Formal  journal  entry  opening  the  general  books  (debiting  capital 
stock  unissued  and  crediting  capital  stock  authorized). 

40 


(b)  Skeleton  ledger  accounts  showing  the  transactions  on  the  general 
books. 

(c)  General  balance  sheet,  October  31,  1912. 

(d)  Stock  book  as  required  by  law. 

(e)  List   of   stockholders,   showing  number  of   shares   held   by   each, 
October  31,  1912. 

Memo.     Acceptance  of  Jennings'  note  fund  not  to  be  legal  (Penal  Law, 
Section  664,  Sub-section  3).     Note  replaced  by  cash,  September  27. 
Copyright,  1912,  by  John  R.  Wildman. 

PROBLEM  60 

The  New  York  Tool  Company  was  incorporated  under  the  laws  of  the 
State  of  New  York,  July  1,  1912,  with  an  authorized  capital  stock  of  $100,000, 
divided  into  1,000  shares  of  the  par  value  of  $100  each.  The  incorporators, 
each  of  whom  subscribed  and  paid  for  20  shares  of  stock,  were  R.  S.  Savage, 
W.  L.  Groves,  and  S.  B.  Long.  The  organization  tax  and  filing  fees  were 
$53.45.  The  bill  of  the  attorney  for  services  in  connection  with  incorporation 
was  $300.    The  first  three  stock  certifiicates  were  issued  to  the  incorporators. 

The  subsequent  transactions  were  as  follows :  July  20,  C.  Stevens  bought 
100  shares  and  received  certificate  No.  4;  August  5,  H.  Tepper  subscribed 
for  10  shares  and  paid  50%  on  account  thereof;  August  17,  Savage  sub- 
scribed for  100  shares,  Groves  125  shares,  and  Long  75  shares,  each  paying 
50%  on  account ;  August  26,  certificate  No.  5  for  300  shares  was  issued  to 
John  Thompson  for  land  and  buildings ;  September  5,  bought  machinery 
in  the  amount  of  $12,000,  paying  $8,000  in  cash  and  giving  note  for  balance ; 
September  16,  certificate  No.  6  for  60  shares  issued  to  John  Darby  for 
Patents;  October  2,  Stevens  sold  30  shares  to  M.  McLean  (new  certificates 
No.  7  and  No.  8)  ;  October  4,  Savage  and  Groves  paid  balance  on  account 
of  subscriptions,  in  cash ;  Long  paid  part  in  cash  and  gave  services  $2,500  for 
the  balance;  certificates  No.  9,  No.  10,  and  No.  11  issued  to  the  incorporators; 
October  21,  K.  Libby  subscribed  for  30  shares,  paying  50%  on  account; 
October  23,  M.  McLean  sold  10  shares  to  B.  Partridge,  5  shares  to  E.  Flint, 
and  5  shares  to  T.  Porter  (new  certificates  No.  12,  No.  13,  No.  14,  and  No.  15 
issued)  ;  October  31,  Savage  assigned  10  shares  of  stock  to  B.  Jones;  Tepper 
refused  to  make  further  payments  on  his  subscription  and  it  was  cancelled. 

From  the  foregoing  prepare : 

(a)  Formal  journal  entry  opening  the  general  books  and  journal  en- 
tries for  subsequent  transactions. 

(b)  General  balance  sheet,  October  31,  1912. 

(c)  Stock  book  as  required  by  law. 

(d)  List   of  stockholders,   showing  number   of   shares  held   bv   each, 
October  31,  1912. 

Copyright,  1912,  by  John  R.  Wildman 

PROBLEM  61 

1.  A  corporation  has  been  formed  with  a  capital  stock  of  $80,0(X);  par 
value  of  each  share,  $100.  750  shares  have  been  subscribed  for,  and  $50,000 
cash  has  been  paid  on  the  subscription.  The  remaining  50  shares  are  to  re- 
main unissued. 

Required :  the  opening  journal  entry,  and  the  cash  book  entry. 

2.  A  corporation  has  been  formed  with  a  capital  stock  of  $120,000,  1,200 
shares  of  a  par  value  of  $100  each.     50%  of  the  capital  stock  has  been  sub- 

41 


scribed  for  at  par,  and  paid  for  in  cash;  25%  of  the  capital  stock  has  been 
subscribed  for,  payments  to  be  made  in  monthly  installments.  The  remain- 
ing 25%  of  the  capital  stock  is  to  remain  unissued. 

Required :  the  opening  journal  entries,  and  the  cash  book  entries. 

3.  Henry  S,  Wyman  is  the  owner  of  a  manufacturing  plant.  The  fol- 
lowing are  his  assets  and  liabilities : 

Cash $  6,000.00 

Manufacturing  Plant 9,000.00 

Real  Estate  10,000.00 

Raw  Material   7,000.00 

Accounts  Receivable   2,000.00 

Accounts  Payable  3,000.00 

Mortgage  Payable   5,000.00 

Mr.  Wyman  has  decided  to  unite  with  Edwin  L.  Horton,  Benj.  S.  Milton, 
and  Wm.  A.  Carter,  to  form  a  corporation.  The  capital  stock  is  to  be  $75,000; 
750  shares  of  a  par  value  of  $100  each.  Mr.  Wyman  is  to  receive  300  shares 
of  stock,  and  each  of  the  other  incorporators  lOO  shares.  The  remaining  150 
shares  are  to  remain  unissued. 

The  difference  between  the  assets  and  the  liabilities  of  Mr.  Wyman,  and 
the  par  value  of  300  shares,  is  to  be  charged  to  Good  'Will  account. 

Required :  The  necessary  entry  to  close  Mr.  Wyman's  books.     Also, 
the  necessary  entries  to  open  the  new  books  of  the  corporation. 


PROBLEM  62 

A  Massachusetts  corporation  temporarily  in  need  of  funds  makes  the  fol- 
lowing arrangement  with  three  of  its  directors.  They  individually  pledge  their 
stock,  par  value  $15,000,  $10,000,  and  $5,000,  and  receive  loans  of  $7,500, 
$5,000,  and  $2,500,  with  which  they  purchase  new  stock  at  par.  It  is  their 
intention,  when  the  loans  are  paid  by  the  corporation,  to  return  this  $15,000 
worth  of  stock. 

(a)  May  this  stock  be  purchased  by  the  company? 

(b)  What  should  be  the  entries  on  the  books  of  the  corpqration? 

(Massachusetts,  1915) 


PROBLEM  63 

L  The  stockholders  of  the  Brown  Book  Company  vote  to  increase  the 
capital  stock  of  the  company  from  $100,000  to  $150,000.  The  former  amount 
is  fully  paid.  Give  the  journal  entry  to  record  the  increase,  assuming  the 
permission  of  the  state  officials  has  been  obtained. 

(a)  Give  the  necessary  journal  entries  for  recording  the  subscription 
to  one-half  the  increase  in  capital  stock,  and  the  payment  in  cash 
of  one-half  the  amount  subscribed. 

2.  A  corporation  has  been  formed  for  the  manufacture  of  machinery  with 
a  capital  stock  of  $160,000 ;  par  value  of  each  share,  $100.  The  owner  of  the 
patents  is  to  receive  400  shares  of  stock  for  his  inventions ;  the  promoter  is 
to  receive  150  shares  of  stock  for  interesting  moneyed  men  in  the  company; 
750  shares  of  the  remaining  stock  have  been  subscribed  for  and  paid  for  in 
cash ;  the  remaining  300  shares  are  to  remain  unissued. 
Make  the  opening  entry. 


PROBLEM  64 

'The  Hill  Oil  and  Mining  Co.  is  incorporated  in  Blank  State  with  a  capital 
stock  of  $1,000,000,  divided  into  500,000  shares  of  $2  each. 

At  a  meeting  of  the  incorporators  the  sum  of  $4,000  was  subscribed  and 
cash  to  the  amount  of  $2,000  ($1  per  share)  was  paid  in,  the  balance  being 
chargeable  to  Organization  Expense. 

The  board  of  directors  votes  to  offer  the  public  125,000  shares  at  $1  each 
to  create  a  working  fund.  They  also  authorize  the  issuance  of  80,000  shares 
of  stock  in  exchange  for  oil  leases  valued  at  $160,000.  Incorporating  expenses 
amounting  to  $600  were  paid.  The  board  approved  the  sale  of  8,000  share<i  at 
$1  per  share  less  a  commission  to  the  broker  of  20%. 

You  are  asked  to  give  the  journal  entries  to  record  properly  the  above 
facts. 


PROBLEM  65 

1.  The  A.  B.  Corporation  has  issued  $100,000  capital  stock,  $50,000  of 
which  has  been  donated  back  to  the  company.  Half  of  the  donated  stock  is 
sold  at  75  and  the  other  half  is  sold  at  105.  Make  the  necessary  journal 
entries. 

2.  (a)  A  firm  having  $40,000  treasury  stock  has  $600,000  stock  issued 

and  outstanding.    How  would  you  show  the  treasury  stock  on  the 
balance  sheet? 

(b)  The  directors  of  the  above  corporation  declare  a  dividend  of  6% 
or  $36,000.  Would  you,  as  an  auditor,  criticise  their  action,  and  if 
so,  on  what  grounds? 

(c)  The  above  firm  sells  its  treasury  stock  at  105  and  issued  $50,000 
new  stock  for  cash.    Make  the  necessary  journal  entries. 

3.  The  C.  D.  Corporation  issued  $20,000  Capital  Stock.  The  stockholders 
donated  to  the  corporation  $10,000  of  Capital  Stock.  Donated  stock  of  par 
value  of  $5,000  is  sold  at  50%  of  par.  The  remainder  of  the  donated  stock  was 
sold  at  105.     Make  the  necessary  journal  entries. 

4.  The  Brown  Co.  is  organized  with  capital  stock  of  $100,000  par  value 
of  which  $75,000  is  subscribed  and  paid  for.  A.  B.,  who  purchased  $20,000 
of  this  stock,  donated  half  of  his  purchase  to  the  corporation.  Of  this  donated 
stock  $6,000  par  value  was  sold  for  $5,000  cash.  Make  the  necessary  journal 
entries. 


PROBLEM  66 

1.  A  company  with  an  authorized  capital  stock  of  $1,000,000,  $100  par 
value,  issues  $800,000  of  shares  in  payment  of  various  properties.  In  order  to 
secure  working  capital  the  shareholders  return  to  the  company  ^^s  of  their 
holdings  to  be  sold  at  50,  and  on  same  day  1,000  shares  are  so  sold  and  paid 
for.  How  would  you  treat  this  matter?  Draft  entries  and  show  ledger 
accounts  and  balances. 

2.  The  authorized  capital  stock  of  a  corporation  is  $500,000,  divided  into 
5,000  shares,  par  value  $100.  Of  this  amount  $400,000  has  been  subscribed 
and  paid  for  in  full.  The  corporation  purchases  ten  shares  of  a  dissatisfied 
stockholder  for  $75  a  share,  and  five  other  stockholders  each   donate   five 

43 


shares  to  the  company.     Five  shares  of  the  purchased  stock  and  all  of  the 
donated  stock  are  sold  for  $50  a  share. 

(a)  Draft  proper  entries  and  show  the  ledger  accounts  and  balances. 

(b)  How  would  the  balances  of  the  accounts  in  (a)  appear  in  a  bal- 
ance sheet? 

(c)  Give  the  entries  and   show  the  ledger  accounts  and  balances  if 
.  the  capital  stock  were  of  no  specified  par  value,  but  5,000  shares 

had  been  issued  at  $80  and  the  other  conditions  remain  as  stated 
in  the  first  paragraph. 

(d)  How  would  the  balances  of  the  accounts  in  (c)  appear  in  a  balance 
sheet  ? 

3.  A  corporation  having  issued  stock  at  par  ($100  per  share)  buys  1,000 
shares  at  95.  It  later  sells  500  of  these  shares  at  98,  and  300  at  85,  and  200 
at  101. 

1.  Give  the  journal  entries  covering  these  transactions. 

2.  Prepare  skeleton  accounts  showing  above  transactions. 

(Adapted  from  Institute  Examination,  June,  1917) 


PROBLEM  67 

1.  The  authorized  outstanding  capital  stock  of  a  corporation  amounted 
to  $100,000  before  stockholders  made  a  pro  rata  donation  of  $10,000  worth  of 
stock  (100  shares  at  par).  Of  this  treasury  stock,  40  shares  were  sold  for 
cash,  at  $30  and  20  shares  for  cash,  at  $25.  Give  the  journal  entries  to  record 
the  above  transactions,  post  to  ledger  accounts,  and  show  how  the  capital 
stock  item  would  appear  in  the  financial  statement  after  consideration  of 
the  above  points. 

2.  The  directors  of  a  corporation  purchase  100  shares  of  stock  held  by 
two  dissatisfied  stockholders  at  $50  per  share.  The  par  value  is  $100  per 
share.  Fifty  shares  of  the  stock  is  immediately  sold  for  $55  per  share 
and  a  month  later  the  balance  is  sold  for  $60  per  share.  Required,  the  neces- 
sary journal  entries. 

3.  A  corporation's  balance  sheet  shows  a  capital  stock  account,  author- 
ized $150,000.00,  issued  $125,000.00.  In  order  to  provide  working  capital, 
the  stockholders  subsequently  make  a  pro  rata  donation  of  $15,000  worth  of 
stock,  for  which  Treasury  Stock  Account  was  charged  and  Working  Capital 
Donated  credited.  Of  this  treasury  stock,  40  shares  were  sold  at  $60,  and  20 
shares  were  sold  at  $70,  the  balance  is  still  in  the  treasury. 

The  company  now  issues  $40,000  of  6%  first  mortgage  bonds,  duly  author- 
ized, and  gives  to  the  vendee  of  the  bonds  all  of  the  treasury  stock  as  a 
"bonus."     The  purchase  price  for  the  bonds  is  $35,000. 

(a)  Show  the  entries  which  were  made  to  put  these  facts  on  the  books. 

(b)  Show  the  entry  for  the  sale  of  the  bonds. 


PROBLEM  68 

The  Hackett  Novelty  Company  was  organized  on  January  1,  1912,  under 
the  laws  of  the  State  of  New  York,  with  an  authorized  capital  stock  of  $500,- 
000,  divided  into  2,500  shares  of  preferred  stock  of  the  par  value  of  $100  each 
and  5,000  shares  of  common  stock  of  the  par  value  of  $50  each. 

At  the  first  meeting  of  the  directors  a  proposition  was  received  from 

44 


Jones  and  Hackett,  co-partnership  trading  under  said  name,  whereby  it 
was  proposed  to  transfer  the  business  property  and  good  will  of  the  co-part- 
nership except  cash  to  the  corporation,  for  and  in  consideration  of  the  sum 
of  $400,000,  to  be  paid  in  the  capital  stock  of  the  corporation,  $250,000  in  pre- 
ferred stock  and  $150,000  in  common  stock,  the  -corporation  to  assume  all 
the  debts  in  connection  with  said  business.  The  proposition  was  accepted 
by  the  directors  and  the  value  of  the  business  acquired  fixed  bv  them  at 
$400,000. 

From  the  schedules  of  assets  and  liabilities  the  following  accounts  were 
opened  by  the  corporation  :  Land  and  buildings,  $100,000;  equipment.  $25,000; 
motor  truck,  $6,000;  furniture  and  fixtures,  $8,000;  investments,  .$50,000; 
materials  and  supplies,  $15,963.21 ;  goods  in  process,  $32,813.97;  finished  goods, 
$25,195.64;  accounts  receivable,  $47,972.13;  notes  receivable  and  interest, 
$10,125  ;  insurance  unexpired,  $475  ;  bond  and  mortgage  payable  and  interest, 
$30,450;  taxes  accrued,  $780;  salaries  and  wages  accrued,  $3,265;  accounts 
payable,  $49,607.52 ;  notes  payable  and  interest,  $20,225.72. 

Of  the  common  stock  remaining  after  the  issue  of  that  to  Jones  and  Hack- 
ett, 1,200  shares  were  sold  to  various  persons  for  cash,  out  of  which  $1,000 
was  paid  to  an  attorney  for  organization  taxes,  filing  fees,  and  expenses. 

From  the  above  prepare : 

(a)  Pro-forma  journal  entry  opening  the  books,  followed  by  journal 
entries  expressing  the  subsequent  transactions. 

(b)  General  balance  sheet  of  the  corporation  after  the  entries  have 
been  made. 

(c)  Skeleton  ledger  accounts  showing  the  closing  of  the  firm's  books. 
Note:    According  to  the  balance  sheet  of  the  firm  on  December  31,  1911, 

the  assets  were  $354,328.24;  the  liabilities,  $104,328.24;  capital,  A  Jones,  $150,- 
000,  B.  Hackett,  $100,000.  The  partners  divided  profits  and  losses  in  propor- 
tion to  investment. 

Copyright,  1912,  by  John  R.  Wildman. 


PROBLEM  69 

The  Hampton  Circle  Swing  Company  was  organized  in  New  York  on 
April  1.  1912,  with  an  authorized  capital  stock  of  $500,000,  divided  into  5,000 
shares  of  the  par  value  of  $100  each.  The  certificate  of  incorporation  was 
filed  April  5. 

At  a  meeting  of  the  directors  held  on  April  6,  there  was  acquired  from 
W.  J.  Hampton,  at  a  valuation  of  $500,000,  all  his  right,  title,  and  interest 
in  various  patents  held  by  him  on  the  Hampton  Circle  Swings. 

In  order  to  raise  funds  with  which  to  exploit  the  invention,  Mr.  Hampton 
donated  to  the  company  2,499  shares  of  stock.  Of  this  2,250  shares  were  sold 
from  time  to  time  at  an  average  price  of  90,  and  225  shares  were  used  in 
giving  a  bonus  of  10%  in  stock. 

The  parts  necessary  to  erect  and  equip  three  swings  were  purchased  from 
the  Danielson  Iron  Company.  The  cost  was  $73,247.92,  of  which  $50,000 
was  paid  in  cash.  The  labor  incident  to  erection  was  paid  for  in  cash  and 
amounted  to  $45,386.58.  One  swing  was  installed  at  Coney  Island,  at  a  cost 
of  $39,544.83;  one  at  Atlantic  City,  at  a  cost  of  $41,275.17;  and  one  at  Fort 
George,  at  a  cost  of  $37,814.50.  The  privileges  cost,  collectively,  $12,000.  The 
net  income  from  the  operation  of  the  swings  for  the  season  was :  Coney  Island, 
$12,273.85  (sold  before  Labor  Day  for  $50,000)  ;  Atlantic  City,  $2,863.15  (in- 
stallation not  completed  until  after  July  4)  ;  Fort  George,  $6,743.35.     The 

45 


salaries  and  expenses  of  the  company  from  April  1  to  September  30,  1912, 
were  $18,787.59.     The  balance  on  account  was  paid  to  the  Danielson  Iron 
Company  and  $2,000  was  paid  for  a  privilege  at  Ocean  City  for  the  season 
of  1913. 
Prepare : 

(a)  Journal  entries  opening  the  books  of  The  Hampton  Circle  Swing 
Company  and  covering  subsequent  transactions. 

(b)  Balance  sheet,  September  30,  1912. 

Copyright,  1912,  by  John  R.  Wildman 


PROBLEM  70 

The  Roller-Coaster  Company  was  incorporated  January  1,  1912,  under 
the  laws  of  the  State  of  New  York,  with  an  authorized  capital  stock  of  $750,- 
000,  divided  into  5.000  shares  of  preferred  and  2.500  shares  of  common  stock 
of  the  par  value  of  $100  each. 

The  stock  was  all  issued  to  Frederick  Johnson  for  patents.  Johnson 
donated  the  common  stock  for  working  capital.  Ninety  per  cent,  of  it  was 
sold  at  an  average  price  of  85. 

Three  outfits  were  erected  as  follows :  Coney  Island,  cost  $60.827.92 ;  Mid- 
land Beach,  cost  $61,382.43;  Glen  Island,  cost  $59,783.47.  The  cost  is  com- 
posed of  material  obtained  from  sundry  creditors  in  the  amount  of  $120,421.78 
(of  which  $97,421.78  was  paid  in  cash),  and  labor  of  installation,  $61,572.04. 

Privileges  cost  $8,750.  The  net  income  from  operation  for  the  season 
was:  Coney  Island,  $8,762.50;  Midland  Beach,  $5,327.90;  Glen  Island,  $2,- 
275.85.  A  privilege  at  Old  Orchard  for  the  season  of  1913  was  purchased  for 
$500.  The  salaries  and  expenses  of  the  company  from  January  1  to  September 
30  were  $22,836.79. 

Prepare : 

(a)  Journal  entries  opening  the  books  and  covering  subsequent  trans- 
actions. 

(b)  Balance  sheet,  September  30,  1912. 

Copyright,  1912,  by  John  R.  Wildman. 


PROBLEM  71 

(Adapted  from  English  Intermediate  Examination,  May  1912) 

The  following  is  the  trial  balance  of  a  company  on  December  31,  19 — ; 

Inventory,  Jan.  1,  1919 $  10,000.00 

Accounts  Receivable   10,000.00 

Plant  and   Machinery 5,000.00 

Wages     2,500.00 

Salaries  1,000.00 

7%    Preferred   Stock $  12,500.00 

Common  Stock   12,500.00 

Lands    15,000.00 

Accounts   Payable 5,000.00 

Surplus       ,      5,000.00 

Traveling   Expense    1,250.00 

Purchases    50,000.00 

Sales         75,000.00 

Cash    15,250.00 

$110,000.00        $110,000.00 

46 


Inventory  on  December  31,  19 — ,  was  $12,500. 
It  is  decided : 

To  write  10%  off  Plant  and  Machinery. 

To  reserve  10%  for  Bad  Debts. 

To  place  $6,250  to  Reserve  for  contingencies. 

To  pay  7%  dividend  on  Preferred  Stock. 

To  pay  6^c  dividend  on  Common  Stock  and  to  keep  the  balance  in  Surplus. 
Prepare  the  appropriate  revenue  accounts  for  the  year,  and  the  financial 
statement  as  at  the  close,  after  appropriating  the  profits  as  directed. 

PROBLEM  72 
(Adapted  from  English  Examination,  May,  1912) 
The  following-  were  the  Ledger  Balances  of  a  Home  Trade  Company  on 
December  31,  1911 : 

Common  Stock  $150,00.00 

7%  Preferred  Stock  190,000.00 

Trade  Creditors 275,000.00 

Notes    Payable 115,000.00 

Reserve    for    Depreciation 25,000.00 

Surplus  (Credit  Balance  at  Jan.  1st) 3,750.00 

Gross  Profit  of  Departments  277,500.00 

Inventories    140,000.00 

Dividends   Paid    11,000.00 

Accounts    Receivable    500,000.00 

Notes   Receivable   12,500.00 

Plant  and   Fixtures 15,500.00 

Cash   at   Bankers 64,000.00 

Good  Will  125,000.00 

Cash  in  Hand 3,250.00 

Salaries  and  Wages 78,500.00 

Interest  and  Discount  Paid 225.00 

Rent  Paid    30,000.00 

Warehouse,  Traveling  and  Other  Expenses 61,500.00 

Directors'  and  Auditors'  Fees 3,025.00 

Bad   Debts 8,500.00 

Repair  of  Plant  and  Fixtures   2,250.00 

The  following  provisions  have  to  be  made : 
$5,000.00  for  bonuses  to  employes. 
5%  Interest  to  Note  Creditors. 
10%  off  plant  and  fixtures. 

Complete  the  revenue  accounts  and  make  up  a  financial  statement  as  on 
December  31,  1911,  assuming  that  a  dividend  for  the  year  of  10%  and  7% 
on  Common  and  Preferred  Stock,  respectively,  is  declared,  and  a  transfer  of 
$15,000  made  to  Reserve  for  Contingencies. 

PROBLEM  73 

The  Ironton  Manufacturing  Company  was  incorporated  July  1,  1910, 
under  the  laws  of  the  State  of  New  York,  with  an  authorized  capital  stock 
of  $1,000,000,  divided  into  7,000  shares  of  preferred,  par  value  $100  each,  and 
6,000  shares  of  common  stock,  par  value  $50  each. 

The  incorporators  subscribed  collectively  to  10  shares  of  the  preferred 
stock  and  paid  on  account  thereof  50%  of  the  par  value. 

Subsequent  to  incorporation,  a  proposal  was  received  by  the  company, 
from  Artuh  Drummond  on  behalf  of  Franklin  Mansfield  and  Curtis  Black- 
well,  two  of  the  incorporators,  wherein  it  was  proposed  to  sell  to  the  companv 
for  the  sum  of  $500,000,  payable  $400,000  in  preferred  stock  and  $100,000  in 

47 


common  stock,  all  rig-ht  and  title  in  the  net  assets,  exclusive  of  cash,  of 
Mansfield  and  Blackwell,  a  co-partnership  engaged  in  manufacturing,  along 
lines  similar  to  those  proposed  by  the  new  company.  These  assets,  exclusive 
of  cash  ($20,000),  were  carried  on  the  books  of  the  co-partnership  at  $400,- 
000;  Mansfield  and  Blackwell  being  equally  interested  in  the  assets,  but 
dividing  profits  in  the  proportion  of  three-fifths  and  two-fifths,  respectively. 

For  the  purpose  of  providing  working  capital,  the  proposal  of  Drummond 
having  been  accepted  and  the  stock  issued  by  the  company,  Mansfield  and 
Blackwell  donate  to  the  company  500  shares  of  the  preferred  stock. 

The  assets  and  liabilities  acquired  are  booked  by  the  company  as  follows : 
Land  and  buildings,  $225,000;  machinery  and  tools,  $150,000;  furniture  and 
fixtures,  $15,000;  accounts  receivable,  $125,000;  notes  receivable,  $40,000; 
patents,  $25,000 ;  mortgage  payable,  $100,000 ;  accounts  payable,  $20,000 ;  notes 
payable,  $10,000. 

For  the  purpose  of  refunding  the  mortgage,'  the  company  aut^iorized  an 
issue  of  bonds  to  the  extent  of  $125,000,  of  which  a  par  of  $50,000  was  sold  at 
95  and  a  further  par  of  $50,000  at  110.  The  life  of  the  bonds  was  10  years, 
and  with  the  proceeds  of  sale  the  mortgage  was  retired. 

A  firm  of  bankers,  Simpson  and  Guthrie,  agreed  to  underwrite  1,000  shares 
of  the  preferred  stock  at  90,  provided  a  bonus  of  10%  in  preferred  stock  was 
allotted  to  them,  and  advanced  on  account  of  the  contract  $50,000  in  cash. 
*The  preferred  stock  used  for  bonus  purposes  was  taken  from  that  donated. 
The  balance  of  the  donated  stock  was  sold  at  80. 

The  operating  transactions  for  the  six  months  ended  December  31,  1910, 
were  as  follows :  Income  from  sales,  $100,000;  cost  of  sales,  $60,00  (composed 
as  follows — purchases,  $55,000,  less  inventory,  December  31,  1910,  $15,000; 
wages  paid,  $14,000;  manufacturing  overhead,  $5,000  paid,  $1,000  accrued); 
selling  expense,  $6,000  paid,  $2,000  accrued;  administrative  expense,  $11,000 
paid,  $1,000  accrued  ;  other  income,  $2,000;  deductions  from  income,  $7,000. 

On  December  31,  1910,  the  balance  of  the  accounts  receivable  was  $138,- 
000  and  the  balance  of  the  accounts  payable.  $10,000.  Spread  the  organization 
expense  over  a  period  of  two  years.    Provide  for  the  premium  on  bonds  sold. 

Prepare : 
The  Ironton  Manufacturing  Company. 

(a)  General  balance  sheet,  December  31,  1910. 

(b)  Statement  of  income  and  profit  and  loss,  six  months  ended  De- 
cember 31,  1910. 

Mansfield  and  Blackwell. 

Skeleton  ledger  accounts  showing  co-partnership  dissolution. 
Copyright,   1912,  by  John   R.   Wildman. 

PROBLEM  74 

1.  (a)  A  corporation  issued  $300,000  of  first  mortgage  20-year  bonds 
under  an  agreement  to  set  aside  annually  1/20  of  the  face  of  the 
bonds  in  a  special  fund  out  of  which  they  could  be  paid  at  maturity. 
The  agreement  contained  no  other  provisions  relative  to  the  secur- 
ity or  payment  of  the  bonds. 

Show  annual  entry  and  entry  when  bonds  are  paid. 

(b)  Suppose  that  in  the  above  case  an  additional  agreement  provided 
that  a  reserve  be  set  up  out  of  profits,  annually  equal  to  1/20  of 
the  face  of  the  bonds.  What  additional  annual  and  final  entries 
should  be  made? 


♦The  bankers  subsequently  accounted  for  the   sale   of  the  stock,   but  did   not  pay 
over  the  balance  due. 

4S. 


2.  (a)     The  A.  B.  corporation  issues  $50,000  of  bonds  at  85.     Bonds  run 

20  years.    Journalize. 

(b)  $2,500  is  set  aside  each  year  in  conformity  to  the  sinking  fund 
provision  for  the  bonds  referred  to  in  (a).  Show  annual  journal 
entry. 

(c)  Show  entry  to  be  made  when  the  bonds  are  paid. 

(d)  Show  the  annual  journal  entry  necessary  to  set  up  a  Reserve  for 
Sinking  Fund  account. 

3.  A  company  issues  bonds  par  value  $100.00  under  an  agreement  to  set 
aside  in  a  special  fund  annually  1/10  of  the  par  value  and  also  to  charge  Profit 
and  Loss  with  a  similar  amount. 

Show  annual  journal  entries. 

What  entries  should  be  made  at  the  end  of  the  tenth  year  upon  pay- 
ment of  the  bonds? 

4.  The  Exeter  Co.  issued  $100,000  par  value  of  first  mortgage  6%  bonds 
at  90.  Later  bonds  of  par  value  of  $10,000  were  purchased  by  the  corporation 
at  110.     Show  the  journal  entries. 

5.  The  Bristol  Manufacturing  Company  issued  and  sold  on  January  1. 
1921,  100  first  mortgage  bonds  of  $500  each,  bearing  interest  at  4  per  cent, 
per  annum,  and  received  $48,000  in  cash. 

What  record  of  the  transactions  should  be  made,  and  in  what  books? 

PROBLEM  75 

The  following  is  a  trial  balance  of  The  Cotton  vSeed  Oil  Company,  Sep- 
tember 30.  1912,  after  closing: 

Land  and  buildings,  $1,275,946.27;  equipment,  $348,727.43;  horses,  wagons 
and  motor  trucks.  $12,872.51;  furniture  and  fixtures,  $15,269.50;  investments. 
.$200,000;  materials  and  supplies.  $65,138.79;  goods  in  process,  $25,591.46;  fin- 
ished ggods,  $45,468.71;  cash,  $68,649.52;  accounts  receivable,  $125,279.34: 
notes  receivable  and  interest,  $41,286.39:  sinking  fund  for  redemption  of  first 
mortgage  bonds,  $207,667.95 ;  first  mortgage  bonds  purchased  out  of  sinking 
fund  (at  an  average  price  of  102^4),  $89,175;  deferred  charges  to  expense, 
$12,813.97;  first  mortgage  bonds  payable,  $300,000  (dated  October  1.  1892. 
due  October  1,  1912,  interest  6%,  payable  April  1  and  October  1,  last 
paid  April  1,  1912):  taxes  accrued,  $14,025;  salaries  and  wages  accrued. 
$18,927.34;  accounts  payable,  $87,316.75;  notes  payable  and  interest,  $51,- 
487.63 ;  interest  accrued  on  first  mortgage  bonds,  $9,000 ;  reserve  for  de- 
preciation of  plant  and  equipment,  $142,305.12;  reserve  for  sinking  fund. 
$210,825;  preferred  capital  stock  issued  and  outstanding,  $1,000,000:  common 
capital  stock  issued  and  outstanding.  $500,000;  profit  and  loss  surplus. 
$200,000. 

The  sinking  fund  has  been  accumulated  by  a  semi-annual  deposit  scien- 
tifically calculated  and  the  reserve  for  the  sinking  fund  has  been  created  out 
of  profits.  The  entry  affecting  the  reserve  for  the  six  months  ended  Sep- 
tember 30,  1912,  has  been  made  but  the  final  sinking  fund  deposit  has  not 
been  made.     The  bonds  were  taken  up  and  cancelled  as  of  October  1.  1912. 

The  company  issues  as  of  October  1.  1912.  a  new  series  of  300  ten-year 
gold  bonds,  which  bear  interest  at  5%  ;  have  a  sinking  fund  provision  and 
the  reserve  for  the  sinking  fund  is  to  be  created  out  of  profits  as  before. 
Sinking  fund  deposits  are  to  be  made  quarterly  instead  of  semi-annually.  The 
amount  deposited  December  31,  1912,  was  $6,136.68.     The  interest  allowed 

49 


on  the  deposit  by  the  sinking  fund  depository  to  March  31,  1913,  was  $61.36. 
The  amount  deposited  March  31,  1913,  was  $6,136.68. 
Prepare : 

(a)  Journal   entries   and  skeleton   ledger  accounts  affecting   the   two 
issues  of  bonds. 

(b)  Balance  sheet,  March  31,  1913. 

Copyright,   1912,   by   John    R.   Wildman. 


PROBLEM  76 

1.  What  are  the  usual  sinking  fund  provisions  to  be  found  in  a  trust 
deed  securing  an  issue  of  bonds  of  a  corporation?  Sketch  in  journal  entry 
form,  with  proper  descriptions,  the  entries  you  would  expect  to  find  in  the 
accounts  of  a  company  relative  thereto. 

2.  A  company  issues  $200,000  of  5%  ten-year  bonds,  which  they  sell  for 
$210,000.  The  bond  recital  provides  that  each  year  one-tenth  of  the  issue 
should  be  reserved  from  current  profits  and  accumulated  until  the  maturity  of 
the  bonds.  The  recital  also  provides  that  a  similar  amount  should  be  accumu- 
lated in  a  sinking  fund. 

The  following  entries  are  required : 

(a)  The  issuance  of  the  bonds. 

(b)  The  annual  reservation  of  profits. 

(c)  The  annual  cash  contribution  to  the  fund. 

(d)  The  payment  of  the  bonds  at  maturity. 

(e)  The  disposition  of  the  reserve. 

3.  The  Albany  Furniture  Company  placed  $100,000  of  its  imdivided  earn- 
ings in  the  hands  of  a  broker  to  invest  in  United  States  5%  bonds.  The 
bonds  were  for  $1,000  each  and  cost  101^^,  commission  y^.  Prepare  detailed 
entries  to  record  properly  the  transaction  on  the  company's  books. 


PROBLEM  77 

A  company  is  under  obligations  to  pay  $10,000  annually  to  sinking  fund 
trustees  "out  of  surplus."    The  following  transactions  take  place: 

December  31,  1914,  $10,000  cash  paid  to  sinking  fund  trustees. 

January  5,  1915,  trustees  invest  in  $10,00  of  the  5%  bonds  of  the  company 
at  98  and  interest  (from  January  1). 

luly  1,  1915,  coupons  on  above  bonds  collected. 

December  31,  1915,  $10,000  paid  to  sinking  fund  trustees. 

January  1,  1916,  coupons  collected. 

January  2,  1916,  $11,000  bonds  bought  for  sinking  fund  at  95. 

July  1.  1916  coupons  collected. 

December  31,  1916,  $125  paid  for  expenses  of  sinking  fund. 

December  31,  1916,  $10,000  paid  to  sinking  fund  trustees. 

January  1,  1917,  coupons  collected. 

January  10,  1917,  $10,000  bonds  bought  at  101  and  interest. 

Give  the  journal  entries   on   the   company's  books   for   the   above   trans- 
actions, disregarding  any  amortization  of  premium  and  discount. 
(Adapted   from    Institute    Examination,    June,    1917.) 

M 


PROBLEM  78 

A  club  issues  $25,000.00  5%  bonds,  par  value  $100.00  each,  dated  January 
1,  1920,  for  the  purposes  of  improvements.  The  Club  dues  are  $100.00  per 
annum,  payable  in  advance,  of  which  the  sum  of  $75.00  per  annum  is  credited 
to  the  general  income  of  the  Club  and  $25.00  handed  by  the  treasurer  to  the 
sinking  fund  trustees,  from  which  will  be  paid  (1)  bond  interest,  (2)  ex- 
penses of  trustees.  (3)  the  balance  to  be  used  by  trustees  to  purchase  bonds 
which  are  thereupon  cancelled.  The  Club  has  350  members,  of  whom  325 
pay  their  dues  in  full  and  others  are  considered  very  doubtful. 

The  trustees  hand  the  treasurer  a  statement  as  of  December  31,  1920, 
showing  that  of  the  money  received  from  him  (1)  all  bond  interest  due 
has  been  paid  to  date,  (2)  fees,  postage  and  clerical  expenses  have  been  paid, 
amounting  to  $250.00,  and  (3)  that  bonds  have  been  retired  on  December  31, 
leaving  a  balance  in  their  hands  of  less  than  $100.00. 

Give  in  journal  form  entries  which  should  appear  on  the  treasurer's 
books,  the  treasurer  also  to  show  the  transactions  of  the  trustees  on  his 
books  for  purpose  of  record.  Give  also  all  entries  which  should  appear  on  the 
trustee's  books. 

PROBLEM  79 

Classify  and  group  the  following  accounts  of  J.  L.  Hubbard,  a  manufac- 
turer, according  to  kind  of  asset,  liability,  proprietary  interest,  income  and 
expenditure : 

Accounts  Payable 

Accounts  Receivable 

Accrued  Salaries  and  Wages 

Advertising 

Notes  Payable 

Notes  Receivable 

Cash 

Credit   Department   Expenses 

Depreciation  of  Buildings,  Machinery  and  Equipment 

Directors'  Fees 

Discounts  on  Purchases 

Discounts  on  Sales 

Factory  Labor 

Federal  Income  Tax 

Freight   and   Cartage   Inward 

Freight  and  Cartage  Outward 

General  Office  Expenses 

Good  Will 

J.  L.  Hubbard,  Investment 

P.  L.  Hubbard,  Drawing 

Insurance   Premiums  Unexpired 

Interest  on  Notes  Payable 

Income  from  Investments 

Inventory,  Raw  Materials 

Inventory,  Goods  in  Process 

Inventory,  Manufactured  Goods 

Investments,   Outside 
■  Maintenance,  Buildings,  Machinery  and  Equipment 

Manufacturing  Power,  Heat  and  Light 

Miscellaneous  Factory  Expenses 

Miscellaneous  Selling  Expenses 

Office  Equipment 

Office  Salaries 

Patent   Rights 

Patterns  and  Drawings 

Plant   Site 

Plant  Buildings 

51 


Plant  Machinery  and  Equipment 

Purchasing  Department  Expense 

Raw  Materials  Purchased 

Reserve  for  Depreciation  of  Buildings,  Machinery  and  Equipment 

Sales  of  Manufactured  Goods 

Sales  of  Waste  Materials 

Sales  Agent's  Commissions 

Salesmen's  Salaries 

Salesmen's  Expenses 

Taxes  on  Buildings  and  Equipment 

Taxes  Accrued 

PROBLEM  80 

The  following  accounts  are  taken  from  the  books  of  Roberts  &  Saunders, 
manufacturers.  Classify  and  group  them  according  to  kind  of  asset,  liability, 
proprietary  interest,  income  and  expenditure: 

Inventory  of  Finished  Goods 

Inventor}-  of  Raw  Materials 

Purchases  of  Raw  Materials 

Sales 

Wages 

Rent  Received 

Discounts  on  Purchases 

Discounts  on  Sales 

Factory  Power,  Light  and  Heat 

Light  and  Heat  for  Ofifice 

Repairs    to    Machinery 

Packing  and  Shipping  Supplies  Used 

Factory  Expense 

General  Office  Expense 

Factory  Insurance 

Insurance  on   Finished   Goods 

Machinery 

Real  Estate 

Pn'  'ing  and  Fixtures 

Tools 

Commission  Paid 

Office  Salaries 

Salesmen's  Salaries 

Interest  Paid 

Discount  Lost  on  Notes  Discounted 

Notes  Receivable 

Notes  Receivable  Discounted 

Notes  Payable 

Accounts  Receivable 

Accounts  Payable 

Office  Furniture  and  Furnishings 

Automobile  Trucks 

Cash  on  Hand 

Cash  on  Deposit 

Roberts,  Investment 

Roberts,  Drawing 

S.  W.  Saunders,  Investment 

S.  W.  Saunders,  Drawing 

Reserve  for  Depreciation  of  Machinery 

Reserve  for  Depreciation   of  Automobile  Trucks 

Reserve  for  Depreciation  on  Buildings  and  Fixtures 

Freight  and   Cartage   Inward 

Postage 

Superintendence 

Taxes 

Good  Will 

Stationery  and  Printing 

Advertising 

Depreciation 

52 


PROBLEM  81 

As  a  test  of  your  knowledge  of  accounting,  the  proprietor  of  a  manufac- 
turing firm,  to  wHom  you  apply  for  a  position,  gives  you  the  following  list 
of  accounts  with  the  request  that  you  arrange  them  in  a  revenue  statement  in 
due  form.    Use  no  figures  in  your  solution : 

Accountant's  Fees 

Advertising 

Bonding  of  Office  Employes 

Collection  and   Exchange 

Delivery  Car  Repairs 

Depreciation,  Factory  Equipment 

Depreciation,  Office  Equipment 

Depreciation,  Sales  Department  Furniture 

Discount  Lost  on  Notes  Receivable  Discounted 

Discounts  on  Purchases 

Discounts  on  Sales 

Dividends  on  Outside  Investments 

Employer's  Liability  Premium 

Factory  Light,  Heat  and  Power 

Factory  Wages 

Freight  and  Cartage  Inward 

Freight  Outv.'ard 

Insurance 

Interest  Paid 

Interest  Received 

Inventory,  Raw  Materials 

(a)  Beginning  of  Period 

(b)  End   of  Period 
Inventory,  Goods  in  Process 

(a)  Beginning  of  Period 

(b)  End  of  Period 
Inventory,  Finished  Goods 

(a)  Beginning  of   Period 

(b)  End  of  Period 
Office  Heat  and  Light 
Office  Salaries 

Packing  and  Shipping  Expenses 

Postage 

Purchasing  Department  Expense 

Raw  Materials  Purchased 

Repairs  to  Factory 

Salesmen's  Salaries 

Sales  Department  Heat  and  Light 

Stationery  and  Printing 

Sales  of  Finished  Goods 

Property  Taxes 

Telephone  and  Telegraph 

Trade  Association  Dues 

Trade  Publication  Subscriptions 

Traveling  Expenses 


PROBLEM  82 

(Adapted  from  North   Carolina  Examination,   1919) 

Assuming  that  these  are  the  principal  divisions  of  the  expense  accounts 
of  a  manufacturing  business  selling  the  product  through  traveling  salesmen 
to  the  retail  trade : 

(a)  Manufacturing  Expenses  Division 

(b)  Selling  Expenses  Division 

(c)  Administration  and  General  Expenses  Division 

(d)  Financial   Income  and   Expenses   Division 

58 


Designate  in  what  division  you  would  classify  each  of  following  accounts 
by  giving  the  number  of  account  and  the  letter  indicating  division  opposite : 

1.  Materials  and  Supplies   Consumed 

2.  Interest  on   Loans  Paid 

3.  Interest  on  Bonds   Paid 

4.  Postage  for  Correspondence 

5.  Postage  for  Parcel  Post 

6.  Domestic  Taxes 

7.  Street  Assessments  for  Street  Improvements 

8.  Federal  Income  Taxes 

9.  Discounts  Received  on  Purchases 

10.  Discounts  Given  on  Sales 

11.  Discounts  Allowed  for  Prompt  Payment  of  Accounts  Receivable 

12.  Exchange  on   Checks 

13.  Revenue  Stamps 

14.  Bonus  to  Traveling  Salesmen 

15.  Bonus  to  Office  Force 

16.  Bonus  to  Factory  Operatives 

17.  Bonus  to  Superintendent  of  Factory 

18.  Fire   Insurance   Premiums   on   Factory 

19.  Fire  Insurance  Premiums  on  Office 

20.  Fire  Insurance  Premiums  on  Warehouses 

21.  Liability    Insurance    Premiums 

22.  Life  Insurance  Premiums  on  Factory  Operatives'  Lives 

23.  Credit  Insurance  Premiums 

24.  Tornado  Insurance   Premiums 

25.  Freight  Prepaid  on   Shipments 

26.  Claims  Allowed  on   Sales  Made 

27.  Rent  of  Factory 

28.  Rent  of  Office 

29.  Traveling  Expenses  of  Superintendent  to  Secure  Operatives 

30.  Traveling  Expenses   of  Buyer 

31.  Expenses  of  Law  Suits  for  Collecting  Account 

32.  Law  Suit  Expenses  Defending  Suit  Brought  by  Employe  for  Damages 

33.  Expense  of  Welfare  Work 

34.  Corporation  Tax 

35.  Amortization   of  Discount  on   Bonds   Issued 

36.  Donations   to    Employes 

37.  Donations  to    Other   Than    Employes 

38.  Freights  on   Purchases 

39.  Claims  Allowed  on  Merchandise  Purchased 


PROBLEM  83 

1.  State  how  the  following  accounts  would  appear  in  the  financial  state- 
ment of  a  corporation : 

(a)  Dividends  Declared. 

(b)  Dividends  Payable. 

(c)  Notes  Receivable  Discounted. 

(d)  Treasury   Stock. 

(e)  Reserve  for  the  Redemption  of  Bonds. 

(f)  Reserve  for  Bad  Debts. 

(f)  Authorized  Bond  issue  of  $2,500,000.00,  of  which  there  has 
been  certified  by  the  Trustee  and  issued  $1,000,000.00, 
namely: 

1.  In  hands  of  the  public $600,000.00 

2.  Pledged   as   collateral   to   secure   Company's   Notes 

Payable    250,000.00 

3.  In  the  custody  of  the  treasurer 150,000.00 

2.  An  electric  light  and  power  company  has  completed  and  is  operating 
about  one-third  of  its  plant  and  is  engaged  in  constructing  and  equipping  the 
remainder. 

54 


Under  these  conditions  how  should  the  following  expenditures  be  treated : 

1.  Interest  on   Bonds  , 

2.  Officers'  Salaries 

3.  Premium  on  Bonds 

4.  Organization  Expenses 

5.  Labor  for  Extending  Transmission   Lines 

6.  Additional   Equipment  of  Power   House     (Mass.,    1915). 

PROBLEM  84 

From  the  following  trial  balance  of  the  Peterson  Mfg.  Co.,  on  May  31, 
1919,  prepare  operating  and  financial  statements: 

Cash    $  5,000.00 

Accounts  Receivable  ^  17,952.00 

Reserve  for  Bad  Debts 1,600.00 

Inventory,  Finished  Goods,  May  1 6,000.00 

Inventory,  Goods  in  Process,  May  1 10,000.00 

Inventory,   Ravir  Material,   May   1 20,000.00 

Factory    Equipment    62,400.00 

Reserve  for  Depreciation  for  Factory  Equipment.  9,000.00 

Office    Equipment    2,880.00 

Reserve  for  Depreciation  for  Office   Equipment..  288.00 

Unexpired  Insurance  1,500.00 

Accounts   Payable    8,052.00 

Accrued  Taxes    200.00 

Capital    Stock    100,000.00 

Sales 40,000.00 

Merchandise   Discount  on  Purchases 230.00 

Raw  Material  Purchases   10,000.00 

Factory   Labor    18,000.00 

Factory    Rent    200.00 

Factory   Power,    Heat   and    Light 1,340.00 

Sundry  Factory   Expenses    90.00 

Repairs   to   Factory   Equipment 170,00 

Salesmen's    Expenses     600.00 

Advertising     700.00 

Sundry  Sales  Department  Expense   300.00 

Office  Salaries   400.00 

Office  Supplies    28.00 

Office  Heat  and  Light 20.00 

Sundry    Office    Expense 30.00 

Merchandise  Discount  on  Sales 260.00 

Salesmen's  Salaries   1,500.00 

$159,370.00        $159,370.00 
Notations: 

Estimated  taxes  for  the  month,  $50.00. 
Insurance  for  the  month,  $60.00. 
Reserve  1%  of  sales  for  bad  debts. 
Depreciation  on  factory  equipment,  10%  per  year. 
Depreciation  on  office  equipment,  5%  per  year. 

Inventory  of  Finished  Goods,   May  31 $  6,500.00 

Inventory  of  Goods  in  Process,  May  31 10,500.00 

Inventory   of   Raw   Material,   May   31 18,000.00 

PROBLEM  85 

A  trial  balance  of  the  general  ledger  of  the  John  Ball  Co..  on  December 
31,  19 — ,  is  as  follows: 

Cash    $      15,185.00 

Notes  Receivable   10,130.00 

Accounts    Receivable    112,495.00 

Securities  Owned  50,000.00 

55 


Inventories,  January  1 — 

Finished   Goods 25,000.00 

Goods  in  Process  50,000.00 

Raw    Material    100,525.00 

Raw    Material    Purchases    381,420.00 

Real   Estate    5,875.00 

Buildings     150,000.00 

Reserve  for  Depreciation  and  Buildings $     25,000.00 

Factory  Equipment  650,000.00 

Reserve  for  Depreciation,  Factory  Equipment.  12,000.00 

Auto   Trucks    10,000.00 

Reserve  for  Depreciation,  Auto  Trucks 2,000.00 

Office  Equipment   12,000.00 

Reserve  for  Depreciation,  Office  Equipment...  1,200.00 

Unexpired   Insurance    5,000.00 

Notes   Payable    25,000.00 

Accounts   Payable    65,000.00 

Bonds  Payable   100,000.00 

Preferred  Capital  Stock 150,000.00 

Common  Capital  Stock  300,000.00 

Surplus  301,640.00 

Sales   950,000.00 

Interest  Earned 1,500.00 

Income  from  Securities   2,500.00 

Merchandise   Discount  on  Purchases 12,000.00 

Factory   Labor 295,000.00 

Factory  Power   Heat  and   Light 8,000.00 

Repairs  to  Equipment 4,000.00 

Sundry    Factory    Expense 900.00 

Salesmen's    Salaries     25,110.00 

Salesmen's   Expenses    9,500.00 

Advertising   9,000.00 

Sundry  Sales  Expense   2,000.00 

Office  Salaries   5,000.00 

Office  Supplies    725.00 

Office    Heat   and    Light 820.00 

Sundry  Office   Expense    585.00 

Merchandise  Discount  on  Sales 4,850.00 

Interest    Paid    4,000.00 

Collection    and    Exchange 720.00 

$1,947,840.00        $1,947,840.00 
Notations: 

Reserve  for  Bad  Debts,  1%  of  Sales. 

Depreciation  Rates:  2%  on  Building;  10%  on  Factory  Equipment;  20%  on 

Auto  Trucks;  10%  on  Office  Equipment. 
Accrued  Labor,  $5,000.00 
Insurance  for  the  year,  $3,000.00. 
Inventories,  December  31 — 

Finished  Goods,  $35,000.00. 
Goods  in  Process,  $45,000.00. 
Raw  Materials,  $125,000.00. 
From  the  above  prepare  an  operating^  statement  and  a  financial  statement 


PROBLEM  86 

The  following  is  the  Trial  Balance  of  the  Victory  Manufacturing  Company 
on  December  31,  19 — : 

(a)  From  it  prepare  the  revenue  accounts,  the  operating  statement 
and  the  financial  statement. 

(b)  Give  the  journal  entries  necessary  to  record  the  declaration  of  an 
8%  dividend  on  preferred  stock  and  a  10%  dividend  on  common 
stock. 

56 


Cash    $  25,000.00 

Notes    Receivable 5,000.00 

Accounts  Receivable   50,000.00 

Liberty  Bonds   10,000.00 

Inventories,  January  1 — 

Raw  Materials  70,000.00 

Goods  in  Process ,' 10,000.00 

Finished  Goods  20,000.00 

Real  Estate   4,000.00 

Buildings   40,000.00 

Factory  Equipment  78,000.00 

Office  Equipment  5,000.00 

Unexpired   Insurance    3,000.00 

Notes   Payable    $     50,000.00 

Accounts  Payable   25,000.00 

Preferred  Capital  Stock  50,000.00 

Common  Capital  Stock   175,000.00 

Deficit 139,425.00 

Sales   *. 1,000,000.00 

Merchandise  Discount  on  Purchases 6,500.00 

Interest  Earned  on  Notes  Rec 200.00 

Interest  Earned  on  Liberty  Bonds 400.00 

Raw  Materials  Purchased  380,000.00 

Labor   325,000.00 

Power    20,000.00 

Factory  Heat  and  Light 3,500.00 

Repairs   to   Machinery 1,300.00 

Sundry  Factory   Expense 3,000.00 

Salesmen's  Salary    40,000.00 

Salesmen's  Expenses  20,000.00 

Freight  Out   10,00000 

Advertising 8,00000 

Sundry  Sales  Department  Expense 1,625.00 

Office  Salaries  6,00000 

Officers'  Salaries  15,00000 

Postage 2,00000 

Telephone  and  Telegrams 1,800.00 

Heat  and  Light  500.00 

Sundry  Office  Expense   250.00 

Merchandise  Discount  on  Sales 4,000.00 

Interest  Paid   5,00000 

Collection  and  Exchange   700.00 

Notations:  $1,307,100.00        $1,307,100.00 

Estimated  Taxes  for  the  year   $  2,000.00 

Insurance  for  the  Year 1,500.00 

Depreciation  on  Buildings,  2%  per  year. 

Depreciation  on  Factory  Equipment,  10%  per  year. 

Depreciation  on  Office  Equipment,  5%  per  year. 

Reserve  for  Bad  Debts,  H%  of  Sales. 

Accrued  Labor   1.500.00 

Inventories,  December  31 — 

Raw   Materials    90,000.00 

Goods  in  Process  15,000.00 

Finished  Goods  18,000.00 

PROBLEM  87 

The  following  is  a  trial  balance  of  the  General  Ledger  of  Green  &  Com- 
pany, December  31,  1920,  before  closing: 

Inventory  Jan.  1,  1920 $   260,000.00 

Sales $1,240,694.14 

Cash  in  Bank 75,12000 

Petty  Cash   14.00 

Purchases    824,639.00 

57 


Returned  Purchases 5,316.48 

Rent  from  Offices 2.444.00 

Taxes    1,460.00 

Wages    164,394.69 

Unexpired  Insurance 3,000.00 

Accounts  Receivable   424,627.50 

Accounts  Payable  *  90,642.38 

Notes  Receivable   11,643.00 

Notes  Payable ■. 20,000.00 

Notes  Receivable  Discounted   1,050.00 

Furniture  and  Furnishings 28,750.00 

Office  Salaries  9,725.45 

Officers'  Salaries 4,624.00 

Sundry    Office    Expense    12,000.00 

2,000  shares  in  "R.  C."  Company  (at  cost) ....      200,000.00 

Capital  Stock  550,000.00 

Surplus  118,992.10 

Dividends  on  Investments   12,000.00 

Fuel  on  Hand   938.00 

Interest  Paid  125.00 

Returned  Sales , 478.46 

Goods     on     Consignments     at     sell- 
ing price   $18,000.00 

Freight,  Insurance  and  Expenses  on 
same   1,600.00       19,600.00 

$2,041,139.10        $2,041,139.10 

Notations: 

Reserve  2%  of  Sales  for  Bad  Debts. 
Insurance  for  the  year,  $1,000.00. 

Inventories: 

Fuel  $      160.00 

Merchandise    15,621.84 

Accrued  Wages 30,264.00 

Accrued   Salaries    1,694.00 

(a)  Adjusting   Entries. 

(b)  Closing  Entries. 

(c)  Operating  Statement. 

(d)  Financial  Statement. 


PROBLEM  88 

From  the  following  trial  balance  of  the  Richards  Manufacturing  Company 
prepare  a  financial  and  an  operating  statement : 

Accounts  Payable    $  16,000.00 

Accounts  Receivable  $  40,000.00 

Advertising     2,500.00 

Accrued  Interest  on  Notes  Payable 400.00 

Accrued  Taxes    600.00 

Bad  Debts    600.00 

Capital  Stock,  Preferred    50,000.00 

Capital   Stock,   Common    50,000.00 

Cash      14,000.00 

Discount  on  Sales   780.00 

Depreciation  on  Equipment 1,200.00 

Discount  on  Purchases  468.00 

Electricity     1,468.00 

Freight  on  Purchases  900.00 

Factory  Supplies  and  Expenses  1,385.00 

Income  on  Bond  Investment 1,000.00 

Interest  Paid 600.00 

Insurance    : 1,400.00 

Inventory  December  31,  1919 52,000.00 

Investment  in  Bonds   16,000.00 

Notes   Payable    17,500.00 

58 


Office   Supplies,    Used    900.00 

Office  Supplies,  Unused  1,700.00 

Office   Expenses    600.00 

Out  Freight   320.00 

Prepaid  Advertising    5,000.00 

Purchases    116,000.00 

Plant   and   Equipment    50,000.00 

Rent  from  Offices   600.00 

Reserve  for  Depreciation,  Plant  and  Equipment..  7,900.00 

Reserve  for  Bad  Debts 6,700.00 

Returned  Sales   389.00 

Salaries— Office  and  Officers   10,780.00 

Salaries — Salesmen     1,780.00 

Salary — Superintendent     15,000.00 

Sales    170,500.00 

Salesmen  Expenses   2,700.00 

Sales  of  Waste  1,300.00 

Surplus      32,856.00 

Taxes     600.00 

Unexpired   Insurance    3,000.00 

Wages  in  Factory   15,000.00 


$356,213.00        $356,213.00 
Inventory  December  31,  1920,  $54,100. 

Note  that  all  adjusting  entries  have  been  made. 

PROBLEM  89 

The  following-  trial  balance  was  taken  from  the  books  of  the  Roe  and 
Doe  Company  on  December  31,  1920: 

Cash  on  Hand   $  100.00 

Cash  in  Bank   3,000.00 

Sales    $1,150,000.00 

Discounts  on  Purchases 20,000.00 

Interest  on  Notes  Receivable 1,000.00 

Accounts  Receivable   150,000.00 

Notes  Receivable  10,000.00 

Capital   Stock    200,000.00 

Real   Estate    50,000.00 

Buildings     200,000.00 

Equipment    50,000.00 

Horses,  Wagons  and  Harness 5,000.00 

Motor  Trucks   5,000.00 

Prepaid  Insurance   2,000.00 

Prepaid  Taxes  5,000.00 

Purchases      900,000.00 

Discount  on  Sales— Cash  20,000.00 

Wages  of  Men  in  Warehouse 25.000.00 

Salaries  of  Department  Managers 10,000.00 

Salaries  of  Office  Assistants 5,000.00 

Drivers,  Teamsters,  Etc 5,000.00 

Horse   Feed 2,000.00 

Auto  Expense   1,500.00 

Inventories,  Jan.  1,  1920,  Merchandise 300,000.00 

Inventory,  Jan.  1,  1920,  Horse  Feed 3,000.00 

Inventory,  Office  Supplies,  as  of  Jan.  1,  1921 . . .  2,000.00 

Office  Supplies   I  3,000.00 

Advertising    50.000.00 

Salesmen's  Salaries    20.000.00 

Salesmen's  Commissions    11,000.00 

Interest  on  Notes  Payable 10,000.00 

Dividend  on  Capital  Stock— 6% 12,000.00 

Notes  Payable  250.000.00 

Accounts   Payable    150,000.00 

Real  Estate — not  used  in  business 150,000.00 

59 


Investment  in  Union  Hotel  Co.  at  cost 50,000.00 

Sprinkler  System,  at  face  of  Contract 10,000.00 

Surplus     290,600.00 

Liability  on  Sprinkler  System 8,000.00 


$2,069,600.00        $2,069,600.00 

PROBLEM  90 

On  November  31,  1920,  a  company  authorized  the  issue  of  $300,000.00 
cumulative  7%  Preferred  Stock  and  sold  same  to  the  Grand  Investment  Com- 
pany at  90%,  giving  also  a  bonus  of  $30,000.00  common  stock.  $70,000.00 
common  stock  was  sold  to  the  present  stockholders  at  par,  the  total  issue 
of  common  stock  being  $300,000.00.  Of  the  proceeds  of  these  sales  $150,000.00 
was  to  be  expended  on  new  buildings,  the  balance  to  be  retained  for  work- 
ing capital. 

On  January  2,  1921,  a  dividend  of  $4-0,000.00,  was  declared,  payable  on 
January  15,  1921. 

The  inventories  at  December  31,  1920  were: 

Merchandise    $325,000.00 

Horse  Feed 1,000.00 

Office  Supplies 1,500.00 

Of  the  insurance  paid  $500.00  applies  to  the  year  1920  and  also  $1,500.00 
of  the  taxes. 

The  sprinkler  system  was  installed  on  July  1,  1920.  Of  the  contract  price 
$2,000.00  was  paid  on  that  date  and  $2,000.00  is  payable  on  each  date  August 
1,  1921,  1922,  1923  and  1924. 

$2,000.00  of  interest  on  notes  payable  applies  to  the  period  subsequent  to 
January  1,  1921. 

The  depreciation  on  buildings  for  the  year  is  $10,000.00  and  on  equipment 
$5,000.00.  The  real  estate  not  used  in  business  has  appreciated  $50,000.00, 
while  that  used  in  business  has  been  appraised  at  $75,000.00.  Depreciation 
on  motor  trucks  is  25% ;  depreciation  on  wagons,  harness  is  15%.  Set  up 
a  reserve  of  ^  of  1%  on  sales,  for  bad  debts.  Prepare  adjusting  and  closing 
entries. 

From  the  foregoing  trial  balance  and  data,  prepare  an  operating  state- 
ment for  the  year  and  a  financial  statement  as  of  December  31,  1920. 


PROBLEM  91 

On  December  31,  19 — ,  you  are  given  the  following  facts  of  the  firm  of 
Smith  and  Jones : 

The  plant  now  in  use  cost  to  build  $60,400.  The  Reserve  for  Depreciation 
account  shows  $8,992.  There  is  a  6%  Mortgage  for  $20,000  on  the  plant. 
Notes  Receivable  are  held  to  the  amount  of  $10,000  and  $25,000  of  notes  have 
been  discounted  at  the  bank  but  are  not  due  yet.  Accounts  Receivable  from 
customers  stand  at  $15,000.  A  reserve  for  Bad  Debts  account  shows  $500. 
An  employee  owes  the  firm  $3,000  on  personal  account.  Deferred  asset  ac- 
counts total  $1,600,  of  which  $600  is  for  insurance.  Accounts  Payable  show 
$4,200  and  Notes  Payable,  $5,000.  The  interest  on  the  Notes  Payable  is  paid 
to  date.  50  shares  of  stock  in  the  Globe  Milling  Company  is  held  by  the 
firm.  It  cost  $3,800.  The  inventory  of  merchandise  showed  $16,000.  Cash 
on  hand  amounts  to  $200  and  in  the  bank  $4,800.     Each  partner  furnished 

60 


$35,000  to  the  partnership  business.  Smith's  drawing  account  shows  a  debit 
of  $6,508  and  Jones'  $2,384. 

Sales  for  the  year  amounted  to  $140,000;  Purchases,  $100,000.  Operating 
Expenses  amounted  to  $25,000. 

From  these  facts  arrange  a  trial  balance.  Adjustments  arc  to  be  made 
from  the  following  facts : 

1.  2%  on  the  plant  is  charged  annually  to  depreciation. 

2.  Interest  on  the  mortgage  is  due  for  the  past  3  months.  Place  the 
amount  in  an  accrual  account. 

3.  The  insurance  that  expired  during  the  previous  period  nmounted  to 
$300. 

4.  Merchandise  on  hand  is  inventoried  at  $20,000. 

Show  the  adjusting  and  closing  entries  and  prepare  operating  and  financial 
statements. 

(Adapted  from  Institute  Examination,  June,  1917) 


PROBLEM  92 

The  following  is  a  total  balance  of  the  general  ledger  of  Frederick  H. 
Rowan,  June  30.  1912,  before  closing: 

Debits 

Labor  $  1.36,250.00 

Insurance    2,720.00 

Commissions    to    Salesmen 4,986.00 

Land,    Buildings   and    Equipment 638,576.00 

Auto  Trucks 20,000.00 

Sales    Returns 2,1 17.00 

Advertising    20,162.00 

Interest  on  Notes   Payable 327.00 

Bad  Debts  Written  Off 1,000.00 

Insurance    Unexpired 428.00 

Machinery   and   Tools 395,000.00 

Cash   45,247.00 

Trade  Discount  on  Sales 4,927.00 

Outward  Freight 3,159.00 

Interest  on  B.  &  M.  Payable 7,500.00 

Factory  Expense 9,276.00 

Manufacturing    Supplies 784.00 

Salaries  of  Clerks— N.  Y 5,432.00 

Furniture    and    Fixtures 17,000.00 

Finished   Goods— Inventory   12/31/11 48,694.00 

Advertising    Unexpired 4,027.00 

Goods  in   Process— Inventory   12/31/1 1 88,847.00 

Gross    Purchases 250,862.00 

Traveling    Expense — Salesmen 7,877.00 

General    Expense— N.   Y 4,285.00 

Taxes    3,874.00 

Salaries  of  Salesmen 17,926.00 

Materials  and  Supplies,  Inv.  12/31/11 139.987.00 

Notes    Receivable 45,000.00 

Sales    Allowances 2,544.00 

Office   Expense— N.  Y 1.621.00 

Cash  Discount  on  Sales 3,988.00 

Accounts    Receivable 177.928.00 

Superintendence   8.000.00 

Repairs  to   Machinery ^^ca^ 

Heat,  Light  and  Power — Factory 1,425.00 

Office  Salaries,  Factory 2,754.00 

Total  Debits $2,124,655.00 

61 


Credits 

Purchase  Allowances $  251.00 

Gross  Sales 637,982.00 

Reserve  for  Depreciation  of  Buildings  and  Equipment 274,175.00 

Interest  Accrued  on  Bond  and  Mortgage  Payable 3,250.00 

Frederick  H,.  Rowan,  Capital 733,133.00 

Cash  Discount  on  Purchases 7,426.00 

Bond  and  Mortgage  Payable 300,000.00 

Purchase   Returns 578.00 

Rent  of  Factory   Sheds 386.00 

Taxes  Accrued  3,874.00 

Interest  Accrued  on   Notes  Payable 2,572.00 

Accounts  Payable '  87,498.00 

Trade  Discount  on  Purchases 7,427.00 

Interest  on  Bank  Balances 487.00 

Wages   Accrued 375.00 

Notes    Payable 65,000.00 

Interest   on   Notes   Receivable 241.00 

Total    Credits $2,124,655.00 

The  inventories  June  30,  1912,  were :  Materials  and  supplies.  $145,782 ; 
goods  in  process,  $64,927;  finished  goods,  $68,928. 

As  of  January  1,  1912,  Rowan  took  into  partnership,  J.  T.  Bergen,  giving 
him  an  interest  of  $300,000.  Bergen  paid  in  as  of  January  1,  $200,000,  which 
was  immediately  drawn  out  by  Rowan.  According  to  the  agreement,  the 
buildings,  machinery  and  tools  were  to  be  depreciated  at  the  rate  of  10% 
per  annum,  beginning  with  the  date  of  the  co-partnership.  The  partners 
were  to  be  credited  with  interest  on  their  respective  investments  or  charged 
with  interest  on  the  deficiency  at  the  rate  of  6%.  No  adjustments  for  capital, 
depreciation  or  interest  have  been  made  on  the  books.     Land,  $70,000. 

From  the  foregoing  prepare : 

(a)  General  balance  sheet,  June  30,  1912. 

(b)  Statement  of  income  and  profit  and  loss  for  the  six  months  ended 
June  30,  1912. 

Copyright,  1912,  by  John  R.  Wildman. 

PROBLEM  93 

A  trial  balance  of  the  general  ledger  of  the  Northwestern  Manufacturing 
Company  on  December  31,  19 — ,  is  as  follows: 

Cash    $     48,269.48 

Notes  Receivable   3,450.32 

Accounts  Receivable  215,000.00 

Reserve  for  Bad  Debts   ■  $      13,160.00 

Inventories,  January  1,  19 — 

Finished   Goods    38,924.00 

Goods  in  Process    52,680.00 

Raw   Material    29,729.30 

Real   Estate   30,000.00 

Buildings     ; 54,750.00 

Reserve  for  Depreciation  on  Buildings 3,246.80 

Machinery      42,370.00 

Reserve   for   Depreciation   on   Machinery 7,692.41 

Furniture  and  Furnishings   6,120.00 

Reserve    for    Depreciation    on    Furniture    and 

Furnishings      1,240.16 

Tools    7,500.18 

Patent  Rights    26,700.00 

Unexpired   Insurance    4,500.00 

Notes   Payable    115,040.00 

Accounts  Payable   42,600.18 

•2 


Notes  Receivable   Discounted    . .  .* 1,000.00 

Capital  Stock 221,000.00 

Surplus       40,260.00 

Sales    1,016,924.78 

Returned  Sales   629.00 

Interest  Earned   432.10 

Raw    Material    Purchases 426,620.48 

Productive  Labor  316,294.80 

Unproductive  Labor    28,469.32 

Heat,  Light  and  Power  22,468.00 

Repairs  to  Buildings  724.68 

Repairs  to  Machinery  1,450.72 

Factory  Expense    4,297.62 

Taxes 1,600.00 

Traveling  Salesmen's  Expenses 18,624.00 

Salesmen's    Salaries     41,250.00 

Bad   Debts    8,416.00 

Office  Salaries   19,270.65 

Officers'  Salaries  4,728.40 

Postage    2,560.00 

Telephone  and  Telegrams    1,713.68 

Stationery  and  Printing  3,060.16 

Interest  Paid  425.64 


$1,462,596.43        $1,462,596.43 

Notations: 

Reserve  for  Bad  Debts  1%  of  Sales. 

Depreciation   Rates:     2%  on   Buildings;   8%   on   Machinery;    10%   on 
Furniture  and  Furnishings. 

Accrued  Labor   $14,216.40 

Accrued   Salaries    1,489.66 

Insurance  for  the  period  1,500.00 

Inventories:    December  31,  19 — 

Rav^r   Material    $31,692.41 

Goods   in   Process    55,328.86 

Finished  Goods  42,690.14 

Tools 7,250.32 

(a)  Prepare  adjusting  and  closing  journal  entries. 

(b)  Operating  Statement. 

(c)  Financial  Statement. 


PROBLEM  94 

(Michigan,  1915) 

ACME   MANUFACTURING  COMPANY, 
TRIAL  BALANCE,  DECEMBER  31,  1914 

Cash  on  Hand  and  in  Bank $  5,000.00 

Notes    Receivable    7,500.00 

Accounts  Receivable   30,500.00 

Inventory  January  1,  1914 115,000.00 

Materials    Purchased    285,000.00 

Productive  Labor,  Dept.  A 100,000.00 

Productive  Labor,  Dept.  B 50,000.00 

Manufacturing  Exp.,  Dept.  A 67,000.00 

Manufacturing  Exp.,  Dept.  B 46,000.00 

General  Mfg.  Expense 12,000.00 

Selling  and  Distributing  Expense 17,000.00 

Administrative  Expense   28,500.00 

Cash  Discount  Allowed 4,500.00 

Cash  Discount  Taken  $       7,500.00 

Gross  Sales,  Dept.  A 412,000.00 

Gross  Sales,  Dept.  B 328.000.CO 

Returns  and  Allowances,  Dept.  A 6,800.00 

Returns  and  Allowances,  Dept.  B 3,200.00 

63 


Real   Estate    * 200,000.00 

Buildings,    Dept.   A 100,000.00 

Buildings,   Dept.   B 50,000.00 

Machinery  and  Equipment,  Dept.  A 47,500.00 

Machinery  and  Equipment,  Dept.  B 32,500.00 

Office  Furniture  and  Fixtures 5,000.00 

Prepaid  Insurance   420.00 

Prepaid  Taxes 780.00 

Accounts   Payable    18,750.00 

Notes  Payable  40,000.00 

Accrued  Pay  Rolls 8,000.00 

Mortgage  Payable   ^  75,000.00 

Reserve  for  Bad  Accounts   4,950.00 

Capital  Stock— Authorized  and  Issued 300,000.00 

Surplus    20,000.00 

$1,214,200.00        $1,214,200.00 

Inventories:  Dec.  31,  1913  Dec.  31,  1914 

Ravi^  Stock   $35,000.00        $20,000.00 

Work  in  Progress,  Dept.  A 60,000.00  70,000.00 

Work  in  Progress,  Dept.  B 20,000.00  10,000.00 

Raw  stock  was  issued  to  departments  during  the  year  in  the  following 
percentages : 

To  Dept.  A,  2-3  To  Dept.  B,  1-3 

No  credit  was  given  to  the  raw  stock  account. 

It  was  found  that  prior  to  January  1,  1914,  depreciation  was  credited  direct 
to  the  capital  assets  as  follows : 

Building,  Dept.  A $20,000.00 

Building,  Dept.  B  10,000.00 

Machinery  and  Equipment,  Dept.  A 15,000.00 

Machinery  and   Equipment,   Dept.   B 12,000.00 

Office  Furniture  and  Fixtures 2,000.00 

No  depreciation  has  been  included  in  the  current  year's  operations,  but 
sufficient  reserve  has  been  created  for  bad  accounts. 

There  has  been  no  change  in  the  capital  asset  account  during  the  current 
year. 

Make  any  adjustments  you  deem  necessary,  covering  depreciation  prior 
to  January  1,  1914,  and  provide  for  current  year's  depreciation. 

Prepare  Departmental  Trading  and  Profit  and  Loss  Statements  for  the 
year  1914,  and  submit  Balance  Sheet  as  at  December  31,  1914. 


PROBLEM  95 

The  following  Profit  and  Loss  account  is  presented  to  you  for  review  by 

the  Directors  of  a  company.  How  would  you  redraw  it  to  show  the  exact 
profit  for  the  period? 

To    Rent $     1,672.00       By  Interest  on   Investments.  .$     4,660.00 

To    Inventory 15,325.00       By    Inventory 17,806.00 

To  Bad  Debts 1.242.00      By  Sales 83,236.00 

To   Interim   Dividend 5,000.00       By  Balance  from  last  year 2,627.00 

To  Depreciation 650.00       By    Sundries 12.00 

To    Purchases 66,728.00       Bv    Reserve    Fund   transferred       2,000.00 

To  Directors'  Fees 2,000.00 

To  Proposed  Dividend 4,000.00 

To    Salaries 2,463.00 

To  General  Expense 3,791.00 

To    Wages 7,402.00 

To    Balance 68.00 


$110,341.00  $110,341.00 

M 


PROBLEM  96 

The  trial  balance  of  the  Good  Coal  Company  on  December  31,  19 — ,  is  as 
follows : 

Plant,  Machinery,   Inventories,   etc $5,087,000.00 

Capital  Stock  $4,000,000.00 

Notes  Receivable   63,000.00 

Cash    98,000.00 

Materials  Used   145,000.00 

Coal  on  Hand,  January  1,  19— 12.750.00 

Labor   1,973,000.00 

Surplus     849,250.00 

Supplies  Used   390,000.00 

Injuries  to  Persons  8,000.00 

Insurance    21,000.00 

Sales   3,850,000.00 

Taxes     26,500.00 

Office  Salaries  5,000.00 

Officers'   Salaries    20,000.00 

General  Office  Expenses   30,000.00 

Rents    and    Royalties    260,000.00 

Freight  Outward    365,000.00 

Discount    on    Sales    90,000.00 

Sales    Expenses    185,000.00 

Sundry  Mining  Expenses    10,000.00 

Accounts    Payable    90,000.00 


$8,789,250.00        $8,789,250.00 
Inventory,  coal  on  hand,  December  31,  $14,000.00 
Output  for  the  year,   1,567,833  tons. 
Prepare    the    operating    statements    and    the    financial    statement.      The 
former  should  show  the  cost  per  ton  of  mining,  selling  and  administering  the 
business. 

PROBLEM  97 

1.     The  balance  sheet  of  Smith  &  Brown  is: 

Cash  $    100.00  Accounts  Payable   $    300.00 

Notes  Receivable  900.00  Notes   Payable    200.00 

Accounts   Receivable    1,500.00  Smith,   Investment    2,500.00 

Building  and  Lot 3,000.00  Brown,  Investment  2,500.00 


$5,500.00  •$5,500.00 

On  January  1,  1919,  Smith  and  Brown  decide  to  incorporate,  using  the 
sarrie  books. 

2.  Suppose  Smith  and  Brown,  mentioned  above,  decided  to  use  new 
books  for  the  corporation  records  and  also  agreed  that  good  will  was  worth 
$1,000  and  that  the  building  and  lot  should  be  transferred  to  the  corporation 
at  $4,000.  Show  closing  journal  entries,  placing  good  will  on  partnership 
books. 

3.  From  the  following  trial  balance  of  A  and  B  partnership,  prepare 
the  journal  entries  necessary  to  record  the  formation  of  a  corporation,  (a) 
When  old  books  are  to  continue  in  use ;  (b)  when  new  books  are  to  be 
opened : 

Building  Lot    $10,000.00 

Accounts   Payable    4,000.00 

Cash    1,000.00 

Accounts    Receivable    6,000.00 

Notes   Payable    5,000.00 

Notes  Receivable    2,000.00 

A    6,000.00 

B    4,000.00 

4.  What  changes  in  above  entries  would  be  made  if  good  will  were  taken 
on  the  books  at  $7,000  and  outsiders  subscribed  for  $8,000  capital  stock? 

65 


PROBLEM  98 

1.  The  Allen  Company  is  organized  to  take  over  the  partnership  busi- 
ness of  Allen  &  Brown.  The  subscription  list  shows  the  following  subscrip- 
tions: Allen,  1,000  shares;  Brown,  1,000  shares;  Carnes,  500  shares;  Doyls, 
100  shares ;  Elwood,  10  shares ;  Fraser,  5  shares.  Allen  &  Brown  transfer 
their  interest  in  their  business  in  full  payment  for  their  subscriptions.  The 
investment  accounts  of  Allen  &  Brown  are  each  $80,000.  The  other  sub- 
scribers pay  cash. 

Make  the  necessary  journal  and  cashbook  entries,  with  the  proper  explan- 
ations. 

2.  The  Allen  Company,  having  an  authorized  capitalization  of  $1,000,000 
of  common  stock,  has  issued  $900,000.  The  directors  declare  a  6%  cash 
dividend  on  January  1,  1919,  and  pay  the  dividend  on  March  1,  1919. 

Make  the  necessary  entries. 

3.  Lee  and  Duncan  are  partners  and  decide  to  form  a  corporation  with 
an  authorized  capital  stock  of  $100,000.  They  agree  that  good  will  shall 
be  valued  at  $20,000.  The  name  of  the  new  corporation  is  to  be  the  Racine 
Commercial  Company. 

The  balance  sheet  of  Lee  and  Duncan,  on  January  31,  1919,  is  as  follows: 

Cash    $  2,000.00 

Notes    Receivable    6,000.00 

Merchandise     18,000.00 

Accounts    Receivable    10,000.00 

Real   Estate    14,000.00 

Fixtures  2,000.00 

Delivery   Equipment    3,000.00 

Liabilities 

Accounts  Payable  15,000.00 

Notes   Payable    5,000.00 

Proprietary  Interest 

Lee,  Investment    20,000.00 

Duncan,   Investment    15,000.00 

Make  the  closing  journal  entries  on  the  books  of  Lee  &  Duncan,  and  the 
opening  entries  for  the  Racine  Commercial  Company.  The  Racine  Commer- 
cial Company  makes  payments  to  Lee  &  Duncan  exclusively  in  the  stock  of 
the  corporation. 

W.  G.  Hinman  and  P.  G.  Walker,  each  subscribers  for  $10,000  par  value 
of  the  new  stock.  Half  is  paid  for  in  cash  with  the  subscription,  and  the 
other  half  is  to  be  paid  for  in  two  equal  installments,  in  30  days  and  60  days, 
respectively. 

Make  the  necessary  journal  entries  to  record  these  subscriptions  and  all 
payments  thereon. 

PROBLEM  99 

On  December  31,  1919,  the  financial  statement  of  the  partnership  of  X 
and  Y  is  as  follows : 

Assets 

Cash $     531.25 

Accounts  Receivable  3,427.75 

Notes  Receivable   1,500.00 

Buildings  and   Fixtures 2,400.00 

Merchandise   Inventory    3,327.40 

Office   Supplies    33.60 

$11,220.00 

«6 


Liabilities 

Notes  Payable  1,600.00 

Accounts    Payable    2,220.00 

Proprietary  Interest 

X   Capital 3,700.00 

Y   Capital    3,700.00 


3,820.00 


7,400.00 


X  and  Y  decide  to  incorporate,  as  of  December  31,  1919,  under  the  name 
of  the  Globe  Commercial  Co.  The  authorized  capital  stock  is  $50,000,  of 
which  one-half  is  preferred  7%  stock  and  the  balance  common.  A,  B,  C, 
D  and  E  have  each  subscribed  for  5  shares  of  preferred  stock  at  par  to  be 
paid  for  as  follows :  One-half  cash  down  and  interest  bearing  notes  at  six 
months  for  the  balance.  Good  Will  is  to  be  valued  at  $5,000.  Each  of  the 
other  assets,  except  cash,  is  to  be  valued  at  10%  less  than  book  value.  X 
and  Y  receive  common  stock  for  their  interest  in  the  partnership. 

Prepare  the  journal  entries  necessary  to  close  the  partnership  books  and 
open  the  corporation  books. 

Later,  $10,000  par  value  of  common  stock  is  sold  at  110  to  G.  H.,  to  be 
paid  for  as  follows :  25%  down  and  25%  in  each  of  three  monthly  installments. 
Journalize  this  sale  of  stock  and  payment  of  all  installments. 


PROBLEM  100 

P  and  G  sell  their  partnership  business  to  the  Wisconsin  Hardware  Com- 
pany, and  receive  in  payment  stock  of  the  corporation.  In  addition  to  giv- 
ing stock  for  the  net  assets  of  the  partnership  the  Wisconsin  Hardware  Com- 
pany gives  stock  for  $5,000  worth  of  Good  Will.  Make  the  closing  entries 
for  the  partnership  and  the  opening  entries  for  the  corporation,  using  the 
figures  in  the  following  financial  statement : 

Assets 

Cash    $     800.00 

Land    5,000.00 

Building     $6,000.00 

Building  Reserve  for  Depreciation 900.00 

5,100.00 

Delivery   Equipment    800.00 

Less  Reserve  for  Depreciation    60.00 

740.00 

Furniture  and  Fixtures    1,000.00 

Less  Reserve  for  Depreciation  100.00 

900.00 

Merchandise   Inventory    10,000.00 

$22,540.00 

Liabilities 

Accounts   Payable    800.00 

Notes    Payable 1,000.00 

Mortgage  on  Building   3,000.00 

4,800.00 

Proprietary  Interest 

P    Investment    10,000.00 

G   Investment 7,74000 

$17,740.00 


PROBLEM  101 

1.  The  owner  of  a  business,  A,  has  decided  to  form  a  corporation  to  take 
over  the  business.  His  friends,  B,  C,  D,  E  and  F,  agree  to  take  stock  in  the 
new  corporation.    The  Balance  Sheet  of  A  is  as  follows: 

Cash  $  1,000.00  Notes  Payable    300.00 

Notes   Receivable    500.00  Accounts  Payable   1,700.00 

Accounts   Receivable    2,000.00  Mortgage  Payable  5,000.00 

Merchandise    8,000.00  A   (Capital  Account)    14,500.00 

Real   Estate  and   Building    ....    10,000.00 


$21,500.00  $21,500.00 

The  new  corporation,  X,  is  to  have  a  capital  stock  of  $25,000  (250  shares, 
par  value  $1CX)  each)  of  which  A  is  to  receive  $20,000  in  paid-up  stock  for  his 
interest  in  the  business.  B,  C,  D,  E  and  F,  each  subscribe  for  10  shares  of 
stock,  each  paying  $5(X)  in  cash  on  his  subscription,  and  giving  his  30-day 
note  for  the  balance. 
Required : 

(a)  The  proper  entries  if  the  old  books  of  A  are  to  used  by  the  X 
corporation. 

(b)  The  proper  entries  if  new  books  are  to  be  opened  for  the  X  cor- 
poration. 

2.  Outline  the  proper  entries  for  recording  the  increase  of  the  capital 
stock  of  the  X  corporation  to  $35,000,  assuming  that  the  entire  amount  of 
the  increase  is  subscribed  and  one-half  of  the  amount  paid  for.  (Permission 
of  the  state  authorities  is  assumed). 

3.  Discuss  the  possible  reasons  for  the  reduction  of  the  capital  stock  of 
a  corporation.  After  the  amount  of  the  capital  stock  had  been  increased  to 
$35,000  assume  that  a  deficit  of  $3,000  occurs  from  the  operations  of  the  X 
corporation  during  the  first  fiscal  year.  What  would  be  the  proper  entries 
to  record  a  corresponding  reduction  in  the  capital  stock  (assuming  permis- 
sion of  tlii  state  authorities)  under  the  following  conditions : 

(a)  If  the  appropriation  account  has  not  been  closed. 

(b)  If  the  appropriation  account  has  been  closed. 

4.  What  would  be  the  proper  entries  under  each  of  the  above  conditions 
were  permission  granted  to  reduce  the  stock  $5,000,  the  deficit  still  remaining 
only  $3,000? 

5.  Disregard  the  reduction  in  stock  referred  to  in  questions  3  and  4. 
Consider  the  total  amount  of  capital  stock  still  to  be  $35,0(X).  Assume  that 
the  net  earnings  of  the  X  corporation  are  $5,0(X).  Outline  the  proper  entries 
for  the  following: 

(a)  The  declaration  of  a  2%  dividend  on  the  outstanding  capital  stock. 

(b)  The  payment  of  this  dividend  in  cash. 

PROBLEM  102 

1.  A  corporation  has  been  organized  under  the  laws  of  the  state  of  Wis- 
consin to  conduct  a  manufacturing  business,  with  an  authorized  capital  stock 
of  $1,500.000— divided  into  $1,000,000  preferred  and  $500,000  common.  Fif- 
teen incorporators  each  subscribe  for  500  shares  of  preferred  stock  (par 
value  $100). 

The  board  of  directors  were  authorized  by  the  stockholders  to  purchase 
the  fully  equipped  plants  of  two  manufacturing  concerns  in  a  similar  business 
for  $890,(X)0.  The  payment  was  made  by  turning  over  the  balance  of  the 
preferred  stock,  $250,000  of  common  stock,  and  $390,000  of  first  mortgage  4% 

63 


bonds,  out  of  a  total  issue  of  $5C0,C00,  leaving  $110,000  of  said  bonds  in  the 
company's  treasury. 

Prepare  opening  journal  entries  with  necessary  explanations  of  the  trans- 
actions. 

2.     A  firm  desires  to  transfer  its  property  to  a  corporation  duly  organized 
to  carry  on  the  business.    The  net  assets  of  the  firm  consist  of  the  following : 

Lands  and  Buildings   $150,000.00 

Inventory 100,000.00 

Accounts  Receivable   150,000.00 

Good  Will  and  Patents   100,000.00 

Cash    50,000.00 

$550,000.00 
It  is  proposed  to  issue  in  full  payment  therefor,  common  stock  aggregat- 
ing the  sum  of  $500,000,  of  which  each  partner  is  to  receive  his  proportionate 
share,  according  to  his  interest  in  the  firm,  viz:  Jones  60%;  Brown,  25%i, 
and  Smith  15%. 

fa)     Prepare  opening  entries  for  the  new  company. 

(b)  Prepare  a  statement  of  assets  and  liabilities. 

(c)  State  what  amount  of  each  class  of  securities  each  of  the  partners 
should  receive.     (Michigan,  1917). 

PROBLEM  103 

1.  A  corporation  purchased  a  business  as  a  going  concern  on  January 
1,  1908,  with  a  right  to  the  profits  from  October  1,  1907.    Its  capital  is: 

5  per  cent.  First  Preferred  Stock $250,000.00 

6  per  cent.  Second  Preferred  Stock $250,000.00 

Common    Stock    $124,000.00 

The  year's  profits  to  September  30,  1908,  were  found  to  have  been  $38,- 
320.00.  What  appropriation  of  such  profits  would  you  consider  to  be  cor- 
rect?    (Illinois,  May,  1909). 

2.  A  corporation  has  a  capital  stock  of  $100,000.00.  It  has  assets  at 
inventory  value  amounting  to  $160,000.00.  With  a  view  to  reducing  the  num- 
ber of  its  enterprises,  it  sells  two  of  its  stores  for  $85,000.00  at  inventory  value. 
This  $85,000.00  is  distributed  among  its  stockholders.  What  entries  should 
be  made  upon  the  books,  and  what  procedure  would  you  recommend  in  order 
to  safeguard  all  interests  in  making  such  distribution?  (Illinois,  November, 
1904.) 

3.  A  corporation's  profits  for  the  year  ended  December  31,  1921,  amounted 
to  $451,000.  The  by-laws  require  a  reserve  equal  to  10  per  cent,  of  any 
dividend  paid  to  the  common  stockholders,  and  any  surplus  remaining  after 
such  dividend  has  been  paid  is  also  to  be  applied  to  the  reserve,  until  such 
reserve  account  amounts  to  $250,000.  The  reserve  at  December  31,  1920  was 
$156,020.  The  capital  is  $2,000,000 — one-half  cumulative  preference  6  per 
cent,  and  one-half  common  stock,  all  fully  paid.  On  December  31,  1921,  the 
preferred  dividend  is  two  and  one-half  years  in  arrears.  On  December  31, 
1920,  there  was  a  deficit  of  $202,000. 

How  would  you  treat  the  profits  for  1921  ? 

4.  The  profits  of  a  corporation  with  a  paid-up  capital  of  $5,000,000.00, 
amount  to  $337,193.08  for  a  given  year,  without  allowing  for  its  mortgage  in- 
terest. At  the  end  of  the  previous  financial  year  there  was  left  a  balance  of 
undivided  profits  of  $27,806.92. 

Its  4  per  cent,  mortgages  are  $500,000.00  and  its  6  per  cent,  mortgages 

69 


are  $750,000.00.  How  much  must  be  taken  from  the  previous  year's  surplus 
balance  to  pay  the  stockholders  a  dividend  of  6  per  cent.  (Illinois,  May, 
1911.) 

5.  At  the  close  of  its  fiscal  year,  December  31,  1920,  a  manufacturing 
corporation  had  a  net  working  capital  of  $75,240.16,  consisting  of:  Cash,  $6,- 
248;  Accounts  Receivable,  $50,169;  Notes  Receivable,  $40,000;  Merchandise 
Inventory,  $28,146;  less  Labor  Accrued,  $4,689;  Accounts  Payable,  $20,684, 
and  Notes  Payable,  $23,949.84. 

During  the  year  1920  the  management  erected  an  addition  to  its  main  fac- 
tory building,  costing  $14,468,  and  installed  additional  equipment  costing 
$16,489. 

After  closing  the  books  on  December  31,  a  dividend  of  $30,000  was  declared 
out  of  net  profits  for  the  year,  amounting  to  $45,689.  The  company  was 
obliged  to  borrow  the  money  to  pay  the  dividend. 

Why  was  it  necessary  to  borrow  the  money?    Was  it  advisable? 

PROBLEM  104 

1.  A  company  issues  $500,000  of  common  stock  in  payment  of  patents 
expiring  in  10  years.  It  hopes,  by  securing  additional  patents  for  improve- 
ments, to  extend  the  period  of  protection  indefinitely.  At  the  end  of  the  first 
year  the  company,  after  making  all  other  charges  except  depreciation  of  pat- 
ents, has  a  realized  profit  of  $50,000. 

Is  there  any  balance  for  dividends? 

2.  A  manufacturing  company  asks  you  to  determine  its  average  annual 
operating  profits,  for  the  past  five  years.  After  charging  all  costs,  expenses 
and  depreciation,  and  allowances  for  bad  debts,  etc.,  it  is  found  that  the  profits 
for  the  first  year  were  $30,000 ;  second  year,  $37,000 ;  third  year,  $35,400 ;  fourth 
year,  $43,200;  fifth  year,  $38,700.  Included  in  the  second  year's  profits  is 
profit  on  sale  of  real  estate,  $3,750 ;  in  the  third  year's  profits,  $7,500  profit 
on  investments ;  in  the  fifth  year's  profits,  $8,600  profit  on  real  estate.  What 
would  you  certify  as  the  average  annual  operating  profit? 

3.  The  directors  of  a  corporation  incorporated  in  their  minutes  a  reso- 
lution to  increase  on  their  books  the  value  of  their  land  and  buildings  by  $125,- 
000.00.  Surplus  account  to  be  credited.  The  explanation  accompanying  the 
resolution  was  that  adjacent  property  had  recently  been  sold  at  about  that 
proportionate  advance.  An  entry  in  accordance  with  this  resolution  was 
placed  on  the  books. 

During  the  year  a  6%  annual  dividend  was  paid  on  the  outstanding  capital 
of  $1,750,000.00,  and  you  find  in  your  examination  of  the  accounts  at  the 
end  of  the  fiscal  year  that  the  surplus  account  shows  a  credit  balance  of 
$6,000,  the  books  having  been  closed. 

Discuss  fully  the  propriety  of  the  actions  of  the  Board  of  Directors,  includ- 
ing your  reasons  for  any  exceptions  that  you  might  take.  (Pennsylvania, 
1917.) 

4.  By  a  charter  provision  a  company  is  directed  to  annually  retire  10% 
of  its  6%  dividend-paying  preferred  stock.  This  preferred  stock  is  now 
worth,  say  115  in  the  market,  and  during  the  past  year  the  company  suc- 
ceeded in  buying  in  2,000  shares,  of  the  par  value  of  $100.00  at  $90.00,  bor- 
rowing for  that  purpose  $180,000.00  for  four  months  at  4%  and  paying  the 
note  at  maturity. 

1.  What  is  the  amount  of  profit? 

2.  How  should  the  amount  be  treated  in  the  company's  statements? 

3.  Would  the  directors  be  justified  in  utilizing  the  amount  for  the 

payment  of  a  common  stock  dividend? 

70 


PROBLEM  105 

Smith  and  Roberts  are  partners,  trading-  under  the  name  of  Smith-Roberts 
&  Co.    The  following  is  a  trial  balance  of  the  partnership  books : 

Cash    $  12,300.00 

Notes  Receivable   32,700.00 

Accounts  Receivable   .- 47,000.00 

Merchandise  Inventories 3,650.00 

Furniture  and  Fixtures    3,000.00 

Buildings   13,000.00 

Real   Estate 50,000.00 

Notes  Payable  $  30,000.00 

Accounts   Payable    13,100.00 

Purchases    84,000.00 

Sales   152,000.00 

Advertising  2,600.00 

Commissions  Paid   3,050.00 

General  Administrative   Expense    12,900.00 

Office  Salaries   9,300.00 

Insurance  Prepaid  (1  year)   625.00 

Cash  Discount  on  Sales    375.00 

Interest  Paid    175.00 

Discount  on  Purchases  550.00 

Collection  and   Exchange    25.00 

Postage    1,650.00 

J.  Smith,  Drawing  Account  2,400.00 

F.  Roberts,  Drawing  Account   1,900.00 

J.    Smith,    Capital    Account    50,000.00 

F.  Roberts,  Capital  Account    35,000.00 

$280,650.00        $280,650.00 
Notations: 

Inventory  on  hand,  $5,365.00. 

Unexpired  insurance,  4  months. 

Unused  advertising  materials,  $165.00. 

Office  salaries  due,  $240.00. 

Division  of  profits.   Smith,   5^;   Roberts,   .>^. 

Prepare  the  operating  and  the  financial  statements. 

Smith  and  Roberts  decide  to  form  a  corporation,  the  Excelsior  Company. 
The  company  is  incorporated  for  $200,000,  of  which  Smith  is  to  receive  $91,- 
000  for  his  interest  in  the  business  and  Roberts  is  to  receive  $59,000  for  his 
interest.  In  order  to  provide  additional  working  capital,  Smith  donated  10 
shares  of  stock,  which  are  sold  to  Taylor,  for  $750  cash. 

(a)  Show  journal  entries  necessary  to  close  the  books  of  the  old  part- 
nership of  Smith-Roberts  &  Co. 

(b)  Show  journal   entries   necessary  to  open   the   books  of  the   cor- 
poration. 

(c)  Outline  the  entries  to  record  the  stock  donated  by  Smith  and  later 
sold. 

(d)  Prepare  the  financial  statement  of  the  new  corporation. 


PROBLEM  106 

John  Mathews  and  Richard  Grady  started  in  business  in  1915,  as  a  part- 
nership, and  although  the  business  was  incorporated  at  December  31,  1920, 
the  old  books  were  continued  and  no  entries  have  yet  been  made  to  record 
the  fact  of  the  incorporation. 

The  assets  and  liabilities  of  the  firm  on  December  31,  1920  are  shown  as 
follows : 

71 


Cash     $  3,000.00            Notes  Payable    $20,000.00 

Accounts    Receivable    20,000.00             Accounts    Payable     25,000.00 

Notes    Receivable    10,000.00            Mathews   $50,000.00 

Inventories     50,000.00             Grady     44,000.00 

Land 15,000.00                                                94,000.00 

Buildings    25,000.00 

Machinery   and    Equipment...  16,000.00 


$139,000.00  $139,000.00 

The  market  value  of  the  land  is  $20,000  and  it  is  agreed  to  take  it  over 
at  that  amount. 

Machinery  and  equipment  should  be  depreciated  15%,  the  merchandise 
2%  and  the  accounts  receivable  1%. 

The  authorized  capital  is  $200,000.00,  of  which  $100,000.00  is  subscribed 
for  by  outsiders,  and  the  remaining-  $100,000.00  is  divided  between  the  part- 
ners. 

(a)  Prepare  closing  entries  for  the  books  of  the  partnership  after  tak- 
ing the  above  notations  into  consideration. 

(b)  Prepare  opening  entries  for  the  books  of  the  corporation.     (Illi- 
nois, May,  1915.) 

PROBLEM  107 

Scott  and  Mackey  are  partners,  trading  under  the  name  of  Scott-Mackey 
&  Company.    The  following  is  a  financial  statement  of  the  partnership  books : 

Cash    .' $  10,000.00 

Accounts    Receivable    125,000.00 

Inventories    75,000.00 

Notes   Receivable    45,600.00 

Land  and  Buildings    208,000.00 

Good   Will    100,000.00 

$563,600.00 

91,600.00 


Accounts   Payable    $  75,600.00 

Notes    Payable    16,000.00 


Scott,    Capital    $200,000.00 

Mackey,   Capital    272,000.00 


472,000.00 


They  decide  to  incorporate  under  the  name  O.  K.  Company.  Scott  is  to 
receive  $250,000.00  for  his  interest  and  Mackey  is  to  receive  $300,000.00.  In 
order  to  provide  additional  working  capital,  they  donate  back  to  the  cor- 
poration 20  shares  of  stock. 

(a)  Prepare  closing  entries  for  the  old  books. 

(b)  Prepare  opening  entries  for  the  new  books.     (Michigan,  1917). 

PROBLEM  108 

The  Supreme  Shoe  Company's  subscription  book  was  opened  December 
21,  1920,  in  accordance  with  the  provisions  of  the  Corporation  Act  of  the 
State  of  Wisconsin.  The  capital  stock  of  $80,000  in  shares  of  $100  each  was 
subscribed  as  follows : 

John    Graham    180  shares $18,000.00 

Ralph  Snider   125       "       12,500.00 

Lewis  Bancroft   140       "       16,000.00 

Charles  Colbv   80       "       8,000.00 

Ray   Jones    40       "       2,000.00 

Carl  Gibbons 235       "       23,500.00 

All  the  subscriptions  were  paid  for  in  cash. 

72 


At  the  meeting  of  the  Board  of  Directors,  held  on  the  5th  day  of  January, 
1921,  the  secretary  presented  to  the  meeting  a  communication  from  Tohn 
Graham.  The  communication  was  an  offer  to  sell  and  transfer  to  the  com- 
pany, by  instruments  of  conveyance  and  transfer,  all  the  assets,  subject  to 
the  liabilities  of  the  business  now  being  conducted  by  John  Graham  &  Son. 

The  condition  of  John  Graham  &  Son  on  December  31,  1920  was: 

Cash  .$  6,280.00  Notes   Payable    $  4,600.00 

Accounts  Receivable 4,690.00  Accounts  Payable   3,294.00 

Notes  Receivable  3,246.00            Accrued  Interest  on  Notes  P..        125.00 

Furniture  and   Furnishings    . . .     5,480.00  Net   Worth    73,202.00 

Machinery    10,924.00   , 

Raw   Material    Inventory    14,614.00 

Goods  in  Process  Inventory.  .  . .  19,468.00 

Finished    Goods    Inventory....  15,230.00 

Unexpired  Insurance   1,289.00 


$81,221.00  $81,221.00 

The  stockholders  of  the  corporation  authorized  the  officers  to  purchase 
the  business  of  John  Graham  &  Son  for  $75,000. 

In  order  to  provide  working  capital,  each  stockholder  donated  twenty 
shares  of  stock  to  the  corporation.  All  the  shares  were  immediately  disposed 
of  as  follows : 

40  shares  at  $  95.00. 
30  shares  at  par. 

50  shares  at  $110.00. 

(a)  Closing  entries  on  the  books  of  Graham  &  Son. 

(b)  Opening  entries  for  the  corporation. 

(c)  Entries  recording  the  donation  of  stock. 

PROBLEM  109 

On  April  1,  1912,  W.  B.  Hone,  A.  J.  Hone  and  F.  G.  Hone,  all  being  gen- 
eral partners  in  the  firm  of  L.  B.  Hone's  Sons,  building  contractors,  decided, 
in  order  to  preserve  the  organization  of  their  business  in  case  of  the  death  of 
any  of  the  partners,  to  incorporate. 

Accordingly,  they  filed  a  certificate  of  incorporation  with  the  Secretary 
of  State  at  Albany,  and  paid  the  organization  tax  and  filing  fee  in  the  amount 
of  $15.75  ($12.50  tax,  $3.25  filing  fees)  out  of  $500  advanced  by  W.  B.  Hone. 
The  par  value  of  the  shares  was  $100  each. 

The  balance  sheet  of  the  co-partnership  was  as  follows :  Assets,  land  and 
buildings  (net  value),  $35,000;  machinery  and  tools  (net  value),  $9,500;  lOM 
Mich.  Cent.  4's  (cost),  $9,887.50;  horses,  wagons  and  harness  (net  value), 
$500;  furniture  and  fixtures  (net  value),  $1,000;  building  materials,  $7,929.04; 
contracts  in  progress,  $18,417.23;  cash,  $12,395.84;  accounts  receivable,- $22,- 
486.75;  notes  receivable  and  interest,  $3,025.17;  unexpired  insurance.  $425. 
Liabilities  and  capital :  taxes  accrued,  $125 ;  salaries  and  wages  accrued,  $250; 
accounts  payable,  $7,528.82;  capital  W.  B.  Hone,  $40,237.28;  capital  A.  J. 
Hone,  $35,182.16;  capital  F.  G.  Hone,  $37,243.27. 

Upon  the  formation  of  the  corporation  and  the  taking  over  of  the  busi- 
ness, each  partner  received  SSy^  shares  of  stock  and  notes  bearing  interest 
at  the  rate  of  6%  per  annum  for  the  balance  of  his  capital  account.  The  cor- 
porate name  was  L.  B.  Hone's  Sons,  Incorporated. 

After  the  new  books  had  been  opened  it  was  discovered  that  charges  to 
contracts  in  the  amount  of  $325.72  had  been  omitted  from  the  schedule  and 
that  $53.75  had  been  omitted  from  the  accounts  payable.    On  April  3  a  check 

73 


in  the  amount  of  $100  was  received  from  the  firm's  brokers  for  interest,  due 
April  1,  which  hud  been  collected  on  the  Mich.  Cent.  4's.     The  check  was 
handed  to  W.  B.  Hone. 
Prepare : 

(a)  Journal  entries  opening-  the  books  of  the  corporation. 

(b)  Balance  sheet  of  the  corporation,  April  1,  1912. 

(c)  Skeleton  ledger  accounts  showing  the  closing  of  the  firm's  books. 

Copyright,  1912,  by  John  R.  Wildman. 

PROBLEM  110 

John  Doe  and  Richard  Roe  started  in  business  January  1,  1920,  as  a  part- 
nership. The  business  was  incorporated  at  December  31,  1920,  the  old  books 
were  continued  and  no  entries  have  yet  been  made  to  record  the  fact  of 
the  incorporation. 

The  assets  and  liabilities  of  the  firm  at  December  31,  1920,  are  shown  on 
the  books  as  follows : 

Land    $  10,000.00            Notes   Payable    $  10,000.00 

Building 20,000.00            Accounts  Payable   15,000.00 

Machinery  and   Equipment   ..  15,000.00  Capital  Accounts: 

Accounts   Receivable    25,000.00            John  Doe   $45,000.00 

Notes  Receivable  5,000.00            Richard  Roe   54,000.00 

Cash  4,000.00                                                  99.000.00 

Merchandise   45,000.00 


$124,000.00  $124,000.00 

No  definite  agreement  has  yet  been  reached  as  to  the  disposition  of  the 
difference  in  the  capital  accounts  of  the  partners. 

Give  the  journal  entries  necessary  to  adapt  the  books  of  the  partnership 
to  the  use  of  the  corporation  based  on  the  following  information.  Also  pre- 
pare a  financial  statement  after  they  have  been  posted. 

The  authorized  capital  stock  is  $200,000.00,  of  which  $150,000.00  has  been 
issued  to  the  partners  equally. 

Profits  and  losses  have  been  shared  equally  in  the  past. 

The  market  value  of  the  land  is  $17,000.00,  and  it  is  desired  to  include 
it  at  this  figure. 

The  depreciation  of  the  building  has  been  offset  by  the  appreciation  of 
building  materials  and  by  the  improvements  charged  to  expense. 

The  machinery  and  equipment  should  be  depreciated  15%,  the  merchan- 
dise 2%,  and  the  accounts  receivable  1%.     (Illinois,  May,  1915.) 

PROBLEM  111 

Upon  the  examination  of  the  partnership  accounts  of  a  manufacturing  busi- 
ness the  following  conditions  are  revealed : 

1.  Sales  toward  the  end  of  the  period  are  unusually  large. 

2.  A  large  deposit  in  bank  is  made  on  the  closing  fiscal  date,  which 
amount  is  credited  to  the  bank  two  weeks  later. 

3.  Machinery  sold  has  been  credited  to  merchandise  sales. 

4.  A  loan  to  the  firm  has  been  credited  by  mutual  consent  to  the  capital 
account  of  one  of  the  partners. 

5.  Depreciation  or  discount  from  the  value  of  a  certain  class  of  the  in- 
ventory, instead  of  being  30  per  cent.,  as  in  prior  years,  is  shown  as  10  per 
cent. 

74 


What  would  you  deduce  from  these  facts,  and  what  would  you  feel  called 
upon  to  do  by  way  of  extended  inquiry  or  report  in  each  of  these  instances? 
(Illinois,  December,  1910.) 

PROBLEM  112 

1.  The  Trial  Balance  of  A,  B  and  C,  sharing  profits  and  losses  equally, 
shows  the  following  facts : 

Plant  and  Machinery   $  14,000.00 

Factory   Fixtures    2,000.00 

Furniture  and   Fixtures  in   Sales   Room 3,000.00 

Furniture  and  Fixtures  1,500.00 

Tools    1,500.00 

Accounts    Receivable    19,500.00 

Notes    Receivable    16,300.00 

Accounts   Payable    18.700.00 

Notes    Payable    4,000.00 

Rent   of  Factory    4,000.00 

Labor   32,000.00 

Factory  Expense   3,200.00 

Power,  Light  and  Heat 8,800.00 

Raw   Materials   Purchased    31,000.00 

Freight    Inward    500.00 

Factory   Supplies    900.00 

Discount  on  Purchases  1,500.00 

Discount   on    Sales    1,100.00 

Sales    152,000.00 

Returned  Sales   200.00 

Insurance  on   Factory    \ 1,400.00 

Repairs  to  Machinery  1,500.00 

Rent  of  Sales  Room  3,000.00 

Commission  Paid  by  Us   1,800.00 

Salesmen  Expenses    3,000.00 

Advertising     1,000.00 

Freight    Outward     1,200.00 

Packing  Materials   700.00 

General   Expense    3,000.00 

Office  Salaries   6,000.00 

Office    Rent    1,200.00 

General  Insurance    900.00 

Postage  and  Express    500.00 

Stationery  and  Printing  1,100.00 

Interest    Paid 400.00 

A    Drawing   Account,    Dr 4,275.00 

B    Drawing   Account,    Dr 2,700.00 

C   Drawing   Account,    Dr 2,025.00 

A    Investment    Account 9,500.00 

B    Investment   Account 6,000.00 

C   Investment   Account 4,500.00 

Cash  to  Balance 

Inventories  on  hand  are  as  follows:  Raw  material,  $5,300;  Goods  in  Process 
of  Manufacture,  $3,200;  Finished  Goods,  $3,000;  Unexpired  Insurance,  $250; 
Depreciation  on  Plant  and  Machinery,  10%  ;  Estimated  Bad  Debt  Loss,  1%. 

They  agree  to  incorporate  the  business  under  the  name  of  A  &  B  Furni- 
ture Co.,  after  making  a  complete  operating  statement.  The  new  company 
is  to  incorporate  for  $100,000.  A  to  get  25  shares  at  $100  per  share ;  B  22 
shares;  C  20  shares,  and  the  subscription  list  contains  names  of  subscribers 
to  the  extent  of  21  shares  and  the  remainder  is  unissued. 

Supposing  you  were  employed  to  make  the  change,  what  would  you  do 
(1)  if  they  requested  you  to  use  an  entirely  new  set  of  books;  (2)  to  use  old 
books?   Make  all  entries  complete. 

36 


PROBLEM  113 

(Adapted   from   English   Examination,   May,    1907) 
The  directors  of  a  corporation  ask  you  to  draft  their  Operating-  Statement 
and  Financial  Statement,  to  be  submitted  to  the  annual  stockholders'  meet- 
ing.    The  following  is  the  trial  balance : 

Good  Will   $  200,000.00 

Rents  Payable   7,500.00 

Bonds   in  X    Company    100,000.00 

Expenses   Connected  with   Underwriting  Bonds   of   X    Co 5,000.00 

Cash    40,000.00 

Real  Estate  10,000.00 

Buildings  and  Equipment    715,000.00 

Accounts  Receivable    45,000.00 

Notes   Receivable    15,000.00 

Taxes    2,500.00 

Interest  on  Loan  and  Bonds 25,000.00 

Directors'  and  Auditors'  Fees ". 5,525.00 

Depreciation  of  Plant 25,000.00 

Petty  Cash   125.00 

Legal  Expenses   1,000.00 

Inventories    100,000.00 

$1,296,650.00 

Gross   Profit    $  125,000.00 

Rents    Receivable    15,000.00 

4%  Bonds  Issued   500,000.00 

Interest   Half   Year  Thereon 10,000.00 

Commission  for  Underwriting  X  Company  Bonds 30,000.00 

Accounts  Payable   6,000.00 

Notes    Payable    15,000.00 

Reserve   for   Depreciation    25,000.00 

Reserve  for  Bad  Debts  1,500.00 

Deposits  of  Employes    3,500.00 

Special  Loan  Payable   100,000.00 

Capital  Stock   ; .  450,000.00 

Surplus    15,650.00 

$1,196,650.00 

PROBLEM  114 

(Adapted  from  the  English  Intermediate  Examination,  May,  1907) 

Prepare  a  financial  statement  of  the  O.  K.  Company,  as  at  December  31, 
19 — ,  from  the  following: 

Land  and  Buildings  $190,000.00 

Inventories   200,000.00 

Capital  Stock  Authorized: 

Common    300,000.00 

Preferred 200,000.00 

Capital  Subscribed  and  Paid: 

Preferred    200,000.00 

Common    270000.00 

Plant  and  Machinery   80,000.00 

Mortgage   Bonds    50,00000 

Additions  to  Plant  During  Year 10,000.00 

Accounts  Receivable   100,000.00 

Cash  on  Hand  500.00 

Accounts   Payable    15,500.00 

Notes   Payable    10,000.00 

Cash  on  Deposit  5,000.00 

Dividends  Payable  100.00 

76 


Notes    Receivable    (in    addition    to    which    notes    amounting    to 

$2,500.00  were  under  discount)   5,500.00 

Surplus: 

Balance   from   Last   Year    $  1,000.00 

This  Year's   Net   Profit   33,600.00 

34,600.00 

Organization    Expenses    500.00 

Reserve  for  Depreciation    11,800.00 


PROBLEM  115 

(Adapted  from  English  Examination,  November,   1907) 

The  following  is  the  Trial  Balance  of  the  K  Company,  on  December  31, 
1906: 

Capital  Stock  $400,000.00 

Land  and  Buildings  $162,500.00 

Machinery  and   Plant    102,500.00 

Stock,  January  1,  1906   87,920.00 

Purchases    123,410.00 

Wages 51,110.00 

Office  Salaries  and   Expenses   13,420.00 

Taxes  and  Insurance  3,720.00 

Discounts  on  Sales   5,410.00 

Metropolitan    Bank    18,420.00 

Sundry   Debtors    44,455.00 

Sundry  Creditors    12,920.00 

Cash  in  Hand   470.00 

Bad   Debts    3,110.00 

Sales,   Less  Returns    226,825.00 

Repairs  2,040.00 

Patents,  Cost   21,000.00 

$639,735.00  $639,735.00 

Upon  audit  it  appears  that  a  purchase  of  goods  in  December  to  the  amount 
of  $2,410,  unpaid  on  December  31,  1906,  has  been  omitted  and  also  that 
Machinery  and  Plant  account  has  been  debited  with  a  sum  of  $345,  which 
should  have  been  charged  to  Repairs.  Prepiire  the  operating  and  the  financial 
statements,  correcting  the  above  errors,  and  writing  $5,000  ofiF  Machinery 
and  Plant  and  10%  oflf  Patents.  The  stock  on  December  31,  1906,  was  val- 
ued at  $98,400. 

PROBLEM  116 

(North  Carolina,  1919) 

From  the  following  accounts,  prepare  a  Balance  Sheet  that  will  exhibit  a 
correct  view  of  the  Net  Worth : 

Accounts    Receivable    $  50,000.00 

Accounts   Payable 20,000.00 

Bonds  Outstanding   100,000.00 

Cash  on   Hand    100,000.00 

Common  Stock  Outstanding 100,000.00 

Dividends   on   Preferred   Stock  Due   and   Unpaid 10,000.00 

Inventories  at  Cost   10,000.00 

Notes    Receivable    5,000.00 

Notes    Payable    213,000.00 

Plant  Account  (at  cost)    200,000.00 

Preferred  Stock  Outstanding 100,00000 

Profit  and  Loss  (Debit  Balance) 126,000.00 

Reserve  for  Depreciation    30,000.00 

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